Macroeconomic policy under a managed floating exchange rate regime: a critical appraisal of the international currency hierarchy literature

An economic literature, the International Currency Hierarchy (ICH), often identified as a (mostly) Brazilian post-Keynesian strand, has been dealing with the asymmetries of the international monetary and financial systems. It argues that a structural monetary constraint prevents peripheral countries from autonomously conducting their own monetary and fiscal policies. While this argument has been almost undisputedly accepted by Brazilian post-Keynesians for the last 30 years, one might struggle to find it compatible with the endogenous money approach in a managed floating exchange rate regime. In this chapter we suggest that the ICH literature can be inconsistent with the endogenous money approach when related to basic elements such as the nature of money, its distinguished characteristics, and consequently, monetary and mainly fiscal policies—the last of which is almost completely neglected in the ICH literature. Going further, we suggest that both monetary and fiscal policies are autonomously set by governments that issue their own sovereign currency, in spite of different degrees of freedom—and sovereignty—related to conditions that are specific to each economy.