Money Meltdown: Restoring Order to the Global Currency System by Judy Shelton

Author:Judy Shelton [Shelton, Judy]
Language: eng
Format: epub
Publisher: Free Press
Published: 0101-01-01T00:00:00+00:00

PEGGED RATES

What if the colluders decided to go public? That is, what if governments stated up front what set of exchange rates they were attempting to achieve among their currencies and then intervened in the markets as necessary to maintain that preannounced matrix of rates? Rates would be managed as before in the sense that governments would manipulate the market value of their currencies by buying or selling them in sufficient quantities to neutralize market pressures up or down, but at least the arrangements would all be very public. Once governments agreed to a certain set of exchange rates among their currencies, the world at large would be informed. Private citizens involved in foreign trade could count on a certain amount of currency stability across borders, at least to the extent that governments fulfilled their responsibility to intervene automatically and to whatever degree necessary whenever market forces pushed the price of one nation’s money out of kilter against other nations’ monies.

To take on such a responsibility, though, is to accept certain constraints on domestic financial behavior. No government can forever resist overwhelming market pressures that drive the value of its currency up or down in response to fundamental economic factors. At some point, each government must reconcile its own budgetary and monetary policies with the value of its currency in the global economy; otherwise, it will find itself unable to make a market in its own money and agreed-upon exchange rates with other currencies will become unsustainable.

If nations thus resolve to keep exchange rates among themselves stable over time, they are likewise bound to pledge that they will abide by certain restrictions limiting the scope of their internal spending and financing decisions. In essence, they have to agree in advance to sacrifice a certain amount of national economic sovereignty in order to reassure other nations participating within the fixed rate system that they will be able to uphold their end of the bargain. They must convince their trading partners that they will have the capacity to support a prespecified exchange rate and that they will refrain from policies that would put the value of their currency out of sync with market assessments.

But the matter of constraints forces the issue: Are nations ready to work together to achieve international monetary stability if it means placing a higher priority on global currency relations than on domestic financial and economic problems? Where should a government’s loyalties lie—in promoting the narrow economic interests of its citizens or in preserving monetary stability for the sake of the global economy? As distinguished economist and former Federal Reserve Governor Henry Wallich expressed it, there are four ways in which nations recognize that they are not alone in the world: through coordination, harmonization, cooperation, and consultation. These terms suggest, in descending order, the degree of constraint exercised over their individual actions. “‘Cooperation’ falls well short of ‘coordination,’ a concept which implies a significant modification of national policies…. It falls short also of ‘harmonization,’ a polite term indicating a somewhat greater reluctance to limit one’s freedom of action.

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