International Monetary Cooperation

By George N. Halm | Go to book overview

X. EXCHANGE RATES AND EXCHANGE CONTROL

"MANAGED FLEXIBILITY"

PLANS FOR INTERNATIONAL CURRENCY stabilization seem a priori committed to the maintenance of stable exchange rates. The International Monetary Fund of the Agreement has, indeed, the purpose "to promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation" (I-iii).

The Keynes Plan aims at "an orderly and agreed method of determining the relative exchange values of national currency units, so that unilateral action and competitive exchange depreciations are prevented" (I-1-b), and does not permit (except under special conditions) subsequent alterations without the permission of the Clearing Union. On the other hand, the Union may even require "a stated reduction in the value of the member's currency, if it deems that to be the suitable remedy" (II-6-8-b). Generally speaking the Keynes Plan takes the attitude that if a country's "wage and price levels in terms of money are out of line with those elsewhere, a change in the rate of its foreign exchange is inevitable" (IV-18).

Considering these provisions we can interpret the Keynes Plan as based on flexible rather than fixed exchange rates,1.

____________________
1.
Not according to Mr. Benson ( Parliamentary Debates, cit. supra, pp. 59-63) who complains that the new plans do not propose relatively stable exchanges nor reasonably stable exchanges but fixed exchanges which shall only be altered by permission. Mr. Benson mentions three prerequisites to the possibility of fixed exchanges: (1) an unvarying ratio between international price levels, (2) an equation of

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