The International Monetary System: A Time of Turbulence

By Jacob S. Dreyer; American Enterprise Institute for Public Policy Research | Go to book overview

Summary of the Discussion

Echoing the themes expounded in the papers and invited commentaries, the subsequent floor discussion focused upon the trend toward increased pluralism in the world economy, the resultant decline in the international importance of the dollar, and the possible alternatives to the dollar as the linchpin of the international monetary system.

The prospects for a strengthened European Monetary System (EMS) and its common currency -- the European currency unit (ECU) -- received a great deal of attention. Although notable differences of opinion were expressed about the significance of the latest efforts toward European monetary integration and their chances for success, the nearterm and medium-term prospects for a widely used common European currency do not appear great. Several reasons were offered in support of this skeptical assessment of the future of the ECU.

One such reason is that transfer of true national sovereignty (meaning, in this context, a degree of control over monetary policy) from member governments of the European Economic Community (EEC) to a supranational body, such as the proposed European Monetary Fund, does not seem very likely in the foreseeable future. Second, even if the ECU were to coexist with national currencies, it would be unlikely to be widely used in domestic transactions. Its universal use in international transactions also seems doubtful. Even its acceptance as a generally preferred investment vehicle is far from certain. Third, short of a complete economic and political integration of EEC members, the EMS will remain essentially an adjustable peg system with all of the known difficulties and problems associated with timely adjustments of the peg. Fourth, there is no inherent reason why the ECU should be a more desirable reserve asset than the dollar. If, in the long run, the battle to subdue inflation proves to be more successful in the United States than in Western Europe, apprehensions about the exchange value of the dollar would simply disappear, and so would the urgent need perceived by a number of monetary authorities to shift some portion of their reserve holdings from dollars into ECUs. Central banks that wish

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