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International Price Stability, Full Employment and Global Balances: The Case for a Commodity Reserve Currency

Listed author(s):
  • Leanne Ussher


    (Department of Economics and BBA, Queens College of the City University of New York)

Despite globalization, liberalized trade and growing global income, billions of people are underemployed and condemned to life-long poverty. Over two thirds of the world’s poor reside in rural regions. Inequality in living standards between developed and developing regions remains a major challenge. Rising inequality has been tied to a declining terms of trade against commodities and towards manufactured goods. The recent increase in commodity prices has aided growth in developing countries, but it has also triggered renewed concern over inflation and access to key commodities. Standard responses to inflation are tighter monetary policy in the industrialized world, and devalued currencies with price controls in developing countries. Such policies will continue to aggravate global imbalances, and stymie long term investment in commodity production. Nicholas Kaldor in 1964 suggested a bold new international monetary system to equilibrate growth between agriculture and industry, and remove bottlenecks to industrialization. Specifically he proposed the creation of a ‘sound money’ international reserve backed by a basket of stored commodities, tying reserve liquidity to international world trade. His proposed commodity reserve currency would not only balance economic progress between regions, but also mitigate global imbalances. This paper argues that such an ambitious global macro proposal could be usefully studied to provide insights into current policy debates on the Millennium Development Goals, a new international monetary order, new global partnerships in resource security, and ways to stabilizing cost-push inflation.

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File Function: Revised version, 2008
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Paper provided by Department of Economics, Queens College of the City University of New York in its series Working Papers with number 0001 Classification- JEL: E12, E6, E5.

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Length: 40 pages
Date of creation: Apr 2007
Date of revision: Mar 2008
Handle: RePEc:quc:wpaper:0001
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