In the year that has passed since the first Optica report was published,1 progress toward European monetary and economic integration has been blocked and, indeed, set back by a succession of crises in exchange markets. The reaction to these crises has been a reintroduction of foreign exchange controls and of more or less disguised trade restrictions. These, if maintained, threaten to destroy the little that remains of European economic union. Firmer cooperation on exchange rates is of prime importance in the present situation and a prerequisite for the eventual launching of a European parallel currency along the lines that were proposed in the Optica 1975 report.
This is the background to the Optica 1976 proposal for the management of exchange rates. The evidence assembled in the report indicates that it would be desirable to limit the movement of exchange rates in line with the difference in an average of recently observed inflation rates at home and abroad. This is far less ambitious than many other schemes that have been proposed in the past. It gives concreteness to broad ideas that have recently been put forward in official circles, which would probably not be operational in their original form because they leave too much discretion to national authorities in defining exchange-rate targets. As a minimum, the Optica proposal would check the type of positive feedback between exchange markets and domestic inflation witnessed in 1976. Its objectives are the stabilization of expectations and the reinforcement of the kind of monetary guidelines that are increasingly being adopted in community countries. But it recognizes that differences in national inflation rates can be eliminated only very gradually.____________________