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2. John Williamson and the Evolution of the International Monetary System
- Author:
- Edwin M. Truman
- Publication Date:
- 08-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Throughout his brilliant career, John Williamson has frequently focused his considerable analytical skills and powers of persuasion on reform of the international monetary system. This paper examines two principal areas of his concern: (1) exchange rates and the adjustment process, and (2) international liquidity, seigniorage, and the stability of the system. With respect to exchange rates, I find that there has been a moderate reduction in variability, but over the past 40 years external imbalances have, if anything, worsened. The adjustment process has malfunctioned. With respect to international liquidity, reserves have expanded rapidly, but their expansion has been demand-determined, has not involved a remonetization of gold or an increase in inflation. I find that concerns about the size and maldistribution of seigniorage are misplaced. Moreover, we are seeing a steady evolution toward a multicurrency international monetary and financial system. However, reserve diversification does not appear to have adversely affected exchange rate volatility to date. I conclude that the principal benefits of the Bretton Woods international monetary system remain and the principal weaknesses remain. But the system is evolving. It could be improved with respect to the adjustment process and the role of the International Monetary Fund as the international lender of last resort.
- Topic:
- Economics, Foreign Exchange, International Trade and Finance, International Monetary Fund, Monetary Policy, and Financial Crisis
3. The Case for an International Reserve Diversification Standard
- Author:
- Edwin M. Truman and Anna Wong
- Publication Date:
- 05-2006
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Rumors about the actual or potential currency diversification of countries' foreign exchange holdings out of dollars are not a new phenomenon. This working paper argues that such concerns about reserve diversification are exaggerated. We present evidence that the extent of actual diversification has been modest to date. Nevertheless, the potential for reserve diversification adds volatility to foreign exchange markets and can catalyze abrupt exchange rate movements. We argue that policymakers acting in their own national interests can do something constructive to reduce the volatility introduced into foreign exchange and financial markets by rumors of large-scale international foreign exchange reserve diversification. We propose the voluntary adoption by major foreign exchange reserve holders in particular of an International Reserve Diversification Standard consisting of two elements: (1) routine disclosure of the currency composition of official foreign exchange holdings and (2) a commitment by each adherent to adjust gradually the actual currency composition of its reserves to any new benchmark for those holdings.
- Topic:
- Economics, Foreign Exchange, Government, and International Trade and Finance