In this chapter we take the question of international monetary reform one step further. Past and current arrangements concerning world money are inadequate to give the emerging global accumulation regime the required degree of cohesion. Our multicurrency system, in which the dollar, the mark, and the yen compete for dominance, ties up huge sums of capital rather unproductively in short-term portfolio management and exacerbates tensions among leading economic powers. The failure of the G-7 nations to follow up on their "managed float" with increased policy coordination shows how difficult it is to reform this system from within.
National currencies are an inadequate form of world money, but at least their use in international transactions avoids the faults of commodity-money. A monetary standard based on strategic commodities, no matter whether gold alone or some combination of raw materials, will always suffer from their relatively inelastic and uncertain supply conditions. Producers of the money commodity will have an outright advantage over others in the marketplace. Even if we reduce the role of the money commodity to that of last-resort reserve and numeraire for exchange rates, as was the case with the gold exchange standard of Bretton Woods, such a hybrid system is prone to break down. Commoditymoney and credit-money are essentially incompatible forms of money and do not coexist easily with each other. One or the other will dominate, and each form of dominance will cause its peculiar sources of instability (e.g., inadequate supply of liquidity, loss of convertibility, inequitably distributed adjustment burdens).
Thus we confront the issue of international monetary reform without any of the known options having proved themselves to be workable in the long run. Neither precious metals nor national currencies are effective forms of world money. We must therefore develop a different monetary standard, one based on a truly global currency. Such a supranational credit-money is the next logical step in the historic evolution of money and completes the century-long transition from regimes of commodity-money to credit-money. It is also, as we shall see