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International Monies, Special Drawing Rights, and Supernational Money

  • Pietro Alessandrini

    (Universita Politecnica delle Marche)

  • Michele Fratianni

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

The current international monetary system (IMS) is fragile because the dollar standard is rapidly deteriorating. The dual role the dollar as the dominant international money and national money cannot be easily reconciled because the US monetary authorities face a conflict between pursuing domestic objectives of employment and inflation and maintaining the international public good of a stable money. To strengthen the IMS, China has advocated the revitalization of the Special Drawing Rights (SDRs). But SDRs are neither money nor a claim on any international institution; are issued exogenously without any consideration to countries’ financing needs; and can activate international monies only though bilateral transactions. The historical record of SDRs as international reserves is altogether unimpressive. We propose instead the creation of a supernational bank money (SBM) within the institutional setting of a clearing union. This union would be a full-fledged agreement by participating central banks on specific rules of the game, such as size and duration of overdrafts, designation of countries that would have to bear the burden of external adjustment, and coordination of monetary policies objectives and at expense of the maintenance of the international public good. We also discuss structural changes that would make SDRs converge to SBMs.

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File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2009-03-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 2009-03.

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Date of creation: Jul 2009
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Handle: RePEc:iuk:wpaper:2009-03
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  1. Elias Papaioannou & Richard Portes, 2008. "Costs and benefits of running an international currency," European Economy - Economic Papers 348, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  2. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact? Lessons from the European gold standard, 1880-1914," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 115-162, 04.
  3. Ben S. Bernanke, 2007. "Global imbalances: recent developments and prospects," Speech 317, Board of Governors of the Federal Reserve System (U.S.).
  4. Lopez, Robert Sabatino, 1951. "The Dollar of the Middle Ages," The Journal of Economic History, Cambridge University Press, vol. 11(03), pages 209-234, June.
  5. Michele Fratianni, 2008. "Financial Crises, Safety Nets, and Regulation," Working Papers 2008-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  6. Pietro Alessandrini & Michele Fratianni, 2008. "Resurrecting Keynes to Stabilize the International Monetary System," Mo.Fi.R. Working Papers 1, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  7. Campa, José Manuel & Goldberg, Linda S., 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
  8. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  9. Michele Fratianni & Andreas Hauskrecht & Aurelio Maccario, 1998. "Dominant Currencies and the Future of the Euro," Open Economies Review, Springer, vol. 9(1), pages 467-492, January.
  10. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: U.S. External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66 National Bureau of Economic Research, Inc.
  11. repec:fip:fedgsq:y:2007:i:sep11 is not listed on IDEAS
  12. Kindleberger,, 2008. "Financial Crises," Cambridge Books, Cambridge University Press, number 9780521068710.
  13. Barry Eichengreen, 2005. "Sterling's Past, Dollar's Future: Historical Perspectives on Reserve Currency Competition," NBER Working Papers 11336, National Bureau of Economic Research, Inc.
  14. Fratianni, Michele, 1974. "The Problem of Coexistence of SDRs and a Reserve Currency: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(1), pages 115-18, February.
  15. 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.
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