ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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A World Monetary Conference, at Last

A World Monetary Conference, at Last?
ISG IN his fifth State of the Union Message to the US Congress, Ronald Reagan announced that he was asking his Treasury Secretary Jim Baker, "to determine if the nations of the world should convene to discuss the role and relationship of our currencies''. Although the US had begun co-ordinating economic and monetary policy among, as he put it, "our major trading partners", "there is more to do". Ronald Reagan couldn't be more emphatic when he observed, in the same address, "we must never again permit wild currency swings to cripple our farmers and other exporters" It is interesting to recall that the Reagan administration had been, until recently, a vigorous opponent of interfering with the foreign exchange market. At the last Economic Summit of the seven major Western industrial countries held in Bonn in May 1985, a bare nine months ago, the US was so stoutly opposed to the idea of holding a world monetary conference for working out, what the French liked to call, a new Bretton Woods agreement that it very nearly wrecked the conference. The French argued for the urgent establishment of "appropriate and stable relations for exchange rates". The European Monetary system with its fixed but moveable exchange rates had demonstrated how a closely managed system could produce greater currency and trade stability. But since the US would not be convinced and continued to swear by the virtues of floating exchange rates, indicating its willingness to consider only limited steps to make the existing system, or non-system, more stable, in the end all that the summit agreed upon was to discuss proposals in the IMF's Interim Committee "with a view to making the international monetary system more stable and more effective". A two-year study commissioned by the industrial countries, which became available soon after the summit, called for enhanced IMF surveillance of the economic policies of the industrial countries to reduce the volatility in currency swings, rejecting the notion that exchange markets had more than a limited role to play in stabilising currency rates. Economic policy convergence with the help of IMF surveillance, the report seemed to be saying, would do the job more efficiently than exchange market intervention. So it appeared that for some time to come the idea of a major conference on the basic problems with the prevailing regime had been put on ice.

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