International Monetary Relations: Taking Finance Seriously
- (pp. 3-28)
(Complimentary)
Abstract
In this essay, we highlight the interactions of the international monetary system with financial conditions, not just with the output, inflation, and balance of payments goals usually discussed. We review how financial conditions and outright financial crises have posed difficulties for each of the main international monetary systems in the last 150 years or so: the gold standard, the interwar period, the Bretton Woods system, and the current system of floating exchange rates. We argue that even as the world economy has evolved and sentiments have shifted among widely different policy regimes, there remain three fundamental challenges for any international monetary and financial system: How should exchange rates between national currencies be determined? How can countries with balance of payments deficits reduce these without sharply contracting their economies and with minimal risk of possible negative spillovers abroad? How can the international system ensure that countries have access to an adequate supply of international liquidity—financial resources generally acceptable to foreigners in all circumstances? In concluding, we evaluate how the current international monetary system answers these questions.Citation
Obstfeld, Maurice, and Alan M. Taylor. 2017. "International Monetary Relations: Taking Finance Seriously." Journal of Economic Perspectives, 31 (3): 3-28. DOI: 10.1257/jep.31.3.3Additional Materials
JEL Classification
- E42 Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- F31 Foreign Exchange
- F32 Current Account Adjustment; Short-term Capital Movements
- F33 International Monetary Arrangements and Institutions
There are no comments for this article.
Login to Comment