U.S.-European Monetary Relations

By Samuel I. Katz; American Enterprise Institute for Public Policy Research, Georgetown University | Go to book overview

COMMENTARIES

Alexandre Kafka

In speaking about Lamfalussy's excellent paper, I shall pay particular attention to those points that concern the LDCs. Since I seem to be the only underdeveloped participant in this meeting, I assume that that is where my comparative advantage lies.

I very much like Lamfalussy's loose definition of monetary integration: increased exchange-rate stability and a high degree of freedom of current and capital transactions. It seems to me that that is a much more useful approach than restricting the concept to absolute fixity of rates and complete and everlasting freedom for capital- and current- account transactions.

One would not deny that the stricter standard, if it could be imposed, would be likely to make things easy in some respects; for instance, by avoiding speculative capital flows. But to proceed even on the softer standard might be worthwhile. After all, the gold standard achieved many of the advantages expected from "integration" without living up to quite so strict a standard. There were tariff changes and rate fluctuations between gold points, and central banks sometimes monkeyed about with the gold points.

If the world was once--at least in its industrial core--enough of an optimum currency area to sustain the gold standard, two questions are raised; (1) Why has it become less so? (It obviously is not an optimum currency area today.) (2) How could it be an optimum currency area in gold standard days without institutionalization of monetary and fiscal integration or harmonization, of which we hear so much these days?

The deterioration in the conditions for an optimum currency area is, obviously, a deterioration not with respect to Robert A. Mundell's criterion (factor mobility) or Ronald I. McKinnon's (openness of the economies) but with respect to Charles P. Kindleberger's criterion

-62-

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