The International Monetary (Non-)Order and the 'Global Capital Flows Paradox'
Levy Economics Institute Working Paper No. 531
31 Pages Posted: 28 Apr 2008
Date Written: April 25, 2008
Abstract
This paper sets out to investigate the forces behind the so-called global capital flows paradox and related dollar glut observed in the era of advancing financial globalization. The supposed paradox is that the developing world has increasingly come to pursue policies that resulted in current account surpluses and thus net capital exports - destined primarily for the capital-rich United States. The hypothesis put forward here is that systemic deficiencies in the international monetary and financial order have been the root cause behind today's situation. Furthermore, it is argued that the United States' position as issuer of the world's premiere reserve currency and supremacy in global finance explain the related conundrum of a positive investment income balance despite a negative international investment position. The assessment is carried out in light of John Maynard Keynes's views on a sound international monetary and financial order.
Keywords: International Monetary Order, Global Imbalances, Capital Account Convertibility
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