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Resurrecting Keynes to Revamp the International Monetary System

  • Pietro Alessandrini

    (Department of Economics, Università Politecnica delle Marche, Ancona)

  • Michele Fratianni

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

There is a broad consensus that the current, large U.S. current-account deficits financed with foreign capital inflows at low interest rates cannot continue forever; there is much less consensus on when the system is likely to end and how badly it will end. The paper resurrects the basic principles of the plan Keynes wrote for the Bretton Woods Conference to propose an alternative to the current international monetary system. We argue for the creation of a supranational bank money that would coexist along side national currencies and for the establishment of a new international clearing union. The new international money would be created against domestic earning assets of the Fed and the ECB. In addition to recording credit and debit entries of the supranational bank money, the new agency would determine the size of quotas, the size and time length of overdrafts, and the coordination of monetary policies. The substitution of supranational bank money for dollars would harden the external constraint of the United States and resolve the n-1 redundancy problem.

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File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2007-19-alessandrini-fratianni.pdf
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2007-19.

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Date of creation: Nov 2007
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Handle: RePEc:iuk:wpaper:2007-19
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  1. Barry Eichengreen, 2010. "Global Imbalances and the Lessons of Bretton Woods," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262514141, June.
  2. Nouriel Roubini & Brad Setser, 2005. "Will the Bretton Woods 2 regime unravel soon? the risk of a hard landing in 2005-2006," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
  3. Mundell, Robert, 2012. "The case for a world currency," Journal of Policy Modeling, Elsevier, vol. 34(4), pages 568-578.
  4. Michele Fratianni & Andreas Hauskrecht, 1998. "From the Gold Standard to a Bipolar Monetary System," Open Economies Review, Springer, vol. 9(1), pages 609-636, January.
  5. Lilia Costabile, 2007. "Current Global Imbalances and the Keynes Plan," Working Papers wp156, Political Economy Research Institute, University of Massachusetts at Amherst.
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