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Nov
09

Exchange rates regimens and monetary standards

Post By gaia1 in Exchange rates

EXCHANGE RATES REGIMENS VERSUS MONETARY STANDARDS

Tuesday, November 09, 2010

 

An author who has greatly impressed me recently is the deputy chief of the IMF Policy Development and Review, Rex Ghosh. His captivating novel “Nineteenth Street NW. A tale of terror in the world of financial markets” written in 2010 led me to his sophisticated 2003 MIT publication entitled “Exchange Rates Regimen: Choices and Consequences” written with a colleague at the IMF and a professor at Georgetown University. It is an empirical study of the great variety of exchange rates regimens that some 150 countries used during some thirty years after the demise of the Bretton Woods agreement.

 

Do I have to assume that he and other colleagues at the IMF have a blind spot of not thinking about possible monetary standards that could bring some order and stability to the exchange rates and avoid large currency swings and serious currency disputes such as the present US-China currency dispute? Of course, IMF officials are daily dealing with exchange rates and engage in research how best to devise them for countries rather than thinking about a system with pegged exchange rates that is based upon a monetary standard. Perhaps in Rex’s case he may also be influenced by his position on the general serendipity of monetary changes with the exception of Bretton Woods where reason and vision prevailed according to his short history of international monetary relations in chapter 1 of his 2003 book.

 

In any event I believe given the monetary turmoil of the last 40 years with its large rate swings and the increasing currency manipulation tendencies that makes one think of the interwar period the need for basic rethinking of the international monetary system is necessary. Reason and vision are needed as much as in 1944, perhaps even more given that humankind is engaged in gargantuan experiment with life on the planet given its unwillingness to face the present climate crisis predicament.

 

Including the dangerous climate predicament in devising a new monetary standard seems a wise strategy. Thus, a carbon-based international monetary system would make sense as it aims to combat the climate crisis through advancing low carbon and climate-resilient development. At least, the G20 Summit in Seoul should decide to start the basic rethinking process by incorporating in its communiqué its decision to set up a UN Commission to that effect, a request that I made about a  week ago to the dozen U.S. government officials who are to take part in the Summit.