The International Monetary System: A Time of Turbulence

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

Sven W. Arndt

Jacob Dreyer's paper begins with a discussion of international economic interdependence and proceeds from there to macroeconomic policy coordination. This is an appropriate sequence insofar as the call for coordination is typically based on the fact of interdependence and occasionally on its purported increase.

That countries are economically interdependent none will deny; that they have become increasingly interdependent in recent years, as Ralph Bryant has suggested in these pages, may be true but is far from evident; but that interdependence -- its level or rate of increase -- creates a presumption in favor of greater coordination does not follow at all. It does not follow for several reasons, including the possibility that coordination may be the cause of global economic instabilities.

It is therefore not clear that interdependence requires more coordination and surveillance than we already have. Instead of letting interdependence dictate the degree of coordination, a country may wish to let the available quality of coordination determine how much of it it wants, then choose the degree of interdependence that goes with it. When countries concluded that coordination under Bretton Woods had become too costly and burdensome, they opted for floating rates. It is, of course, widely agreed that until countries can coordinate their inflation preferences exchange rates will have to remain flexible, but flexibility is also required in order to accommodate divergent growth and productivity trends and to manage the various shocks that are visited upon the system from time to time.

In addition to the question of whether interdependence or coordination came first, more careful attention needs to be given to the precise form coordination is to take and the purposes for which it is to be undertaken. Those who have criticized existing international monetary arrangements as a "nonsystem" often appear to be concerned mainly with the absence of rules and with international civil servants; whereas those who have thought about the object of coordination have some

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