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The International Monetary System: Should it be Reconsidered?

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  • Jacob A. Frenkel

Abstract

This paper addresses the question of reform of the international monetary system. It starts by identifying the sources of disenchantment with the performance of the present regime of floating exchange rates and by outlining the reasons for the lack of convergence of views about the characteristics of the desired system. A central theme in the discussion is that a reform of the monetary system without a fundamental change in macroeconomic policies may be harmful. The analysis proceeds by examining the broader issues and principles relevant for an evaluation of reform. The key questions are: what should be reformed, what are the costs of reform and when should the reform occur. In this context special attention is given to the "target-zones" proposal for exchange rate management. The paper concludes with the observation that a reform of the system should not be viewed as an instrument for crisis management dominated by short-term considerations, but rather should be guided by long-term perspective. It is argued that if the root cause of the current economic difficulties is fiscal imbalances in the world economy, then a drastic reform of the international monetary system (if one is needed) might better wait until nations restore a more sustainable course of fiscal management.

Suggested Citation

  • Jacob A. Frenkel, 1987. "The International Monetary System: Should it be Reconsidered?," NBER Working Papers 2163, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2163
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    Cited by:

    1. Michael Devereux & Thomas A. Wilson, 1989. "International Co-ordination of Macroeconomic Policies: A Review," Canadian Public Policy, University of Toronto Press, vol. 15(s1), pages 20-34, February.
    2. Lehment, Harmen, 1988. "Wechselkurszielzonen und der Louvre-Accord," Open Access Publications from Kiel Institute for the World Economy 1370, Kiel Institute for the World Economy (IfW Kiel).
    3. Rudiger Dornbusch & Jeffrey Frankel, 1988. "The Flexible Exchange Rate System: Experience and Alternatives," International Economic Association Series, in: Silvio Borner (ed.), International Finance and Trade in a Polycentric World, chapter 7, pages 151-208, Palgrave Macmillan.
    4. Salvatore, Dominick, 1995. "The international monetary system: Are present arrangements optimal? Editor's introduction," Journal of Policy Modeling, Elsevier, vol. 17(5), pages 443-448, October.
    5. Sergey Narkevich & Pavel Trunin, 2012. "Reserve Currencies: Factors of Evolution and their Role in the World Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 162P.
    6. Zhen Zhu, 1997. "Dynamic Inconsistency and Exchange-Rate Target Zones: A Welfare Analysis," International Economic Journal, Taylor & Francis Journals, vol. 11(1), pages 15-38.
    7. Salvatore, Dominick, 1995. "The operation and future of the international monetary system," Journal of Policy Modeling, Elsevier, vol. 17(5), pages 513-530, October.

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