Toward a Global Monetary Order

10 Pages Posted: 6 Apr 2013

Date Written: June 15, 2012

Abstract

I will begin by disputing that there is a global monetary system. We do not have a system in any meaningful sense. There are 182 independent currencies in the world. Some currencies are fixed in relation to other, larger currencies (e.g., the Hong Kong dollar to the U.S. dollar). Some currencies move within a band against other currencies (e.g., the Singapore dollar and the Chinese yuan). Many currencies float on foreign exchange markets, but few float freely. Four major currencies float against each other: the U.S. dollar, the euro, the pound, and the yen. Countries also change their foreign exchange regime (e.g., Mexico in recent decades).

The multiplicity and changeability of arrangements defies the use of “system,” certainly not in comparison to arrangements of the past or possible arrangements of the future. Stability and certainty of expectations are not possible. The dollar still dominates, and one might suggest that “the Fed rules.” But the Federal Reserve follows no rule, and is not the source of stability or certainty.

No one designed the global fiat monetary arrangements; the world stumbled into them. Global fiat money came about because of flaws in the prior global monetary arrangements and political considerations in the United States.

There certainly were advocates for the current system. They believed that fiat monies would work better than the gold standard. The problem is that all the supposed advantages have proved elusive, and the predicted deficiencies have been realized in practice. The issues were debated in the 1930s, and that debate remains surprisingly modern.

Keywords: international financial system, global currency exchange, gold standard, exchange rates, federal reserve, fiat currency, monetary policy, monetary reform, global economy

JEL Classification: E02, E42, E52, E58, F60, H87

Suggested Citation

O'Driscoll, Gerald P., Toward a Global Monetary Order (June 15, 2012). Cato Journal, Vol. 32, No. 2, 2012, Available at SSRN: https://ssrn.com/abstract=2244477

Gerald P. O'Driscoll (Contact Author)

Cato Institute

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

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