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

Two topics dominated the discussion from the floor: the degree of useful distinction between money and credit, and the extent of influence of changes in international reserve aggregates on world inflation.

Commenting on the first topic, Ronald McKinnon pointed out that some specific length of time to maturity of an asset, frequently used as the basis for distinction between money and credit, is hardly relevant. He suggested that a proper criterion for whether an asset should be classified as money or as credit is whether one can draw a check on it -- that is, can use it directly as a means of payment. He also argued that the distinction is more important under flexible than under fixed exchange rates because under the former each country becomes more directly responsible for conducting an independent monetary policy.

Fritz Machlup suggested in this connection that, given the fuzziness of the concept of credit, some other term, such as nonliquid deposits perhaps, should be used for making the distinction to which McKinnon was alluding.

Although there was clear recognition of the difficulties of distinguishing operationally between money and credit, Karl Brunner suggested that few economists would have difficulty delineating the set of assets in which they would willingly accept repayment of previously extended loans. This set would be defined as money. The function of econometric studies in drawing the line in practice between money and credit was also emphasized. One can specify equations describing demand for various assets, for example, and see for which assets the influence of the level of transactions on their demand is significant and positive.

In regard to the effect of changes in totals of international reserves on global inflation, a wide range of opinions was voiced. Several participants expressed doubts about John Williamson's view that reserve aggregates were not of major importance in this regard. The discussion made clear the need to distinguish between two different propositions: that changes in international reserve levels have little influence on

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