The Impact of Banking Policy on Trade and Global Stability

By Neil H. Ashdown | Go to book overview
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Chapter 5

Monetary Policy, Foreign Exchange, and Trade

INTRODUCTION

The economies of the world’s nation-states are growing increasingly more interdependent as the marketplace for trade has expanded in a global fashion. While trade seems to be one of the buzzwords of policy makers, politicians, the media, corporations, and labor unions, this chapter will question the role of a seemingly nonactive trade policy from the standpoint of the U.S. Federal Reserve System. A comparative approach will be employed to identify certain characteristics that have been successful for one of the world’s most effective banking institutions in recent decades and to examine how the U.S. Federal Reserve should implement these objectives into its mission statement so that the United States can continue to thrive in the global economy of the twenty-first century.

The country, or rather the banking system, that will serve as the comparison model is the German Bundesbank. Germany and the United States, while differing in size, have quite similar standard-of-living levels when measured by GDP per capita, private and public consumption, and GDP growth.

The central bank of Germany—prior to its somewhat diminished role under the European Monetary Union, which went into effect on January 1, 1999—was committed in its support for international trade, particulary domestic exportation, without the obstacles of political restraint and regulation to hinder its policy objectives. The

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