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111. The Case for a New International Monetary System

Author:
Judy Shelton
Publication Date:
06-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
How often do we hear references to the notion that we live in a rules-based global trading system? Addressing the World Economic Forum at Davos in January 2017, British Prime Minister Theresa May praised liberalism, free trade, and globalization as “the forces that underpin the rules-based international system that is key to our global prosperity and security” (Martin 2017). Chinese President Xi Jinping likewise extolled the virtues of a rules-based economic order at Davos, winning widespread praise for defending free trade and globalization (Fidler, Chen, and Wei 2017). But could someone please explain: What exactly are those rules? Because if we are going to invoke the sentimentality of Bretton Woods by suggesting that the world has remained true to its precepts, we are ignoring geopolitical reality. Moreover, we are denying the warped economic consequences of global trade conducted in the absence of orderly currency arrangements. We have not had a rules-based international monetary system since President Nixon ended the Bretton Woods agreement in August 1971. Today there are compelling reasons—political, economic, and strategic—for President Trump to initiate the establishment of a new international monetary system.
Topic:
Economics, International Cooperation, and Monetary Policy
Political Geography:
Global Focus

112. Toward a Rules‐​Based International Monetary System

Author:
John B. Taylor
Publication Date:
06-2018
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
Over the past few years I have been making the case for moving toward a more rules-based international monetary system (e.g., Taylor 2013, 2014, 2015, 2016a, 2016b, 2017). In fact, I made the case over 30 years ago in Taylor (1985), and the ideas go back over 30 years before that to Milton Friedman (1953). However, the case for such a system is now much stronger because the monetary system drifted away from a rules-based approach in the past dozen years and, as Paul Volcker (2014) reminds us, the absence of a rulesbased monetary system “has not been a great success.” To bring recent experience to bear on the case, we must recognize that central banks have been using two separate monetary policy instruments in recent years: the policy interest rate and the size of the balance sheet, in which reserve balances play a key role. Any international monetary modeling framework used to assess or to make recommendations about international monetary policy must include both instruments in each country, the policy for changing the instruments, and the effect of these changes on exchange rates. Using such a framework, I show that both policy instruments have deviated from rules-based policy in recent years. I then draw the policy implications for the international monetary system and suggest a way forward to implement the policy.
Topic:
International Cooperation, International Trade and Finance, Monetary Policy, and Central Bank
Political Geography:
Global Focus

113. Monetary Policy in an Uncertain World: The Case for Rules

Author:
James A. Dorn
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Since monetary policy operates in an uncertain world, discretionary policymaking relying on macroeconomic models of the economy is a weak reed upon which to base policy. The complexity of economic systems and constant changes in the underlying data mean errors may occur in a discretionary regime that can lead to monetary and financial instability.1 The 2008 financial crisis is a case in point: central bankers and their expert staffs failed to anticipate the crisis, and may have worsened it by keeping policy rates too low for too long (Taylor 2012). Moving to a rules‐​based regime would not eliminate radical uncertainty, but it could decrease institutional uncertainty—or what Robert Higgs (1997) has called “regime uncertainty”—and thus reduce the frequency of policy errors. Higgs focused on the uncertainty caused by fiscal and regulatory policies that attenuated private property rights by decreasing expected returns on capital. A discretionary monetary regime increases uncertainty about the future purchasing power of money and thereby undermines an important property right.
Topic:
Economics, Monetary Policy, Economic structure, and Macroeconomics
Political Geography:
Global Focus

114. Global Monetary Policy Divergence and the Reemergence of Global Imbalances

Author:
Daniel Gros
Publication Date:
06-2018
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Developed economies are paying remarkably little attention to coordinating their monetary policies. This is an unavoidable consequence of the independence of central banks, which faithfully follow their purely domestic mandates except in times of crisis. As a result, global monetary policies have reached unprecedented levels of divergence. This divergence is set to widen—primarily due to differences in the relative strength of labor markets—while global current account imbalances return. Meanwhile, exchange rates have not reacted as economists expected; the dollar has weakened even as policy rates have increased. Economic tensions will likely become more disruptive the longer global imbalances go uncorrected. Likewise, the global economy will become more vulnerable to shocks. Yet by focusing on bilateral trade imbalances, the United States has mistakenly singled out China when the global imbalances between the United States and the eurozone is the more critical issue. The growing global imbalances are reflected more in the eurozone current account surplus and U.S. fiscal policy than in China’s shrinking surplus.
Topic:
International Trade and Finance, Monetary Policy, Exchange Rate Policy, and Economic Inequality
Political Geography:
Global Focus

115. Exchange Rate, Petroleum Price and Price Determination in Sierra Leone

Author:
B.I.B. Kargbo
Publication Date:
01-2018
Content Type:
Working Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
The Sierra Leone economy is a net importer with a chronic negative balance of trade. Imports as a percentage of GDP averaged 40.8% between 2001 and 2010. Imports of food, mineral fuels and lubricants accounted for 50.8% of the total value of imports within the same period. Also, the value of the leone depreciated from Le 920.75 in 1996 to Le 4,000 in 2010 while inflation averaged 12.6% for the same period. As a result of the interplay of these forces, fuel prices are most times adjusted upwards to compensate for the depreciation of the leone against the dollar or to match up with increases in the world price of crude oil. This study determines the effects of monetary environment as well as exchange rate movement and petroleum prices on domestic prices in Sierra Leone by estimating a hybrid model of inflation in which inflation responds to its own lags, lags of other variables, and a set of error-correction terms that represent short run disequilibria from the money market, external sector and output that feed into the inflation process.The empirical results from the parsimonious model show that petroleum product prices and exchange rate, as well as monetary factors determine inflation in Sierra Leone.What is also significant from the findings is that the contribution of petroleum prices to domestic price formation is unfounded in the long run, meaning that it is only a short-run phenomenon. The results also support the view that a fair portion of fluctuations in domestic prices is driven by its own shocks.
Topic:
Development, Economics, International Trade and Finance, Monetary Policy, Economic Growth, and Inflation
Political Geography:
Africa and Sierra Leone

116. Estimating the Size and Trends of the Informal Economy in Ghana

Author:
Matthew Kofi Ocran
Publication Date:
01-2018
Content Type:
Research Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
The purpose of this paper is to quantitatively examine the evolution of the informal economy over the past four decades. The study used the currency demand approach as analytical framework for the assessment. The findings suggest that there has been an upward trend in the size of the informal economy as a proportion of the officially recorded GDP. For instance, the size of the informal economy as a proportion of the official GDP estimates increased steadily, from 14% in 1960 to 18% by 1977. The proportion fell thereafter and started picking up again from 1983 to a new high of 30% between 2003 and 2004. The outcome of the study has policy implications particularly for the design of effective monetary and fiscal policy and the selection of appropriate policy instruments.
Topic:
Development, Economics, International Political Economy, Monetary Policy, Economic Growth, Fiscal Policy, and Profit
Political Geography:
Africa and Ghana

117. Virtual currencies and their potential impact on financial markets and monetary policy

Author:
Lukasz Janikowski and Marek Dabrowski
Publication Date:
09-2018
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
Virtual currencies are a contemporary form of private money. Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast. This gives them good prospects for further development. However, they remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas. As with other innovations, virtual currencies pose a challenge to financial regulators, in particular because of their anonymity and trans-border character.
Topic:
Science and Technology, Monetary Policy, Economic Growth, Currency, and Trade
Political Geography:
Europe, Poland, and European Union

118. Economic recovery and inflation

Author:
Marek Dabrowski
Publication Date:
04-2018
Content Type:
Special Report
Institution:
Center for Social and Economic Research - CASE
Abstract:
In the last decade, advanced economies, including the euro area, experienced deflationary pressures caused by the global financial crisis of 2007-2009 and the anti-crisis policies that followed—in particular, the new financial regulations (which led to a deep decline in the money multiplier). However, there are numerous signs in both the real and financial spheres that these pressures are disappearing. The largest advanced economies are growing up to their potential, unemployment is systematically decreasing, the financial sector is more eager to lend, and its clients—to borrow. Rapidly growing asset prices signal the possibility of similar developments in other segments of the economy. In this new macroeconomic environment, central banks should cease unconventional monetary policies and prepare themselves to head off potential inflationary pressures.
Topic:
Economics, Monetary Policy, Economic Growth, Inflation, Macroeconomics, and Unemployment
Political Geography:
Europe, Global Focus, and European Union

119. Towards An Inflation Targeting Regime in Zambia

Author:
Caesar Cheelo and Thulani Banda
Publication Date:
06-2017
Content Type:
Working Paper
Institution:
Zambia Institute for Policy Analysis and Research (ZIPAR)
Abstract:
In this paper, I seek to discuss the conduct of monetary policy in an inflation targeting framework. The objective is to understand structural and institutional nuances in settings where this framework is successful in controlling inflation and challenges that emerge in the implementation of inflation targeting. I deal with the question: which institutional conditions should exist to support the successful implementation of inflation targeting in countries that use it? I find several institutional and legal elements which are common and can potentially explain much of the success in the implementation of inflation targeting among their monetary authorities. I benchmark these elements with the concepts of transparency and accountability of the central bank which are central tenets in the discussion of inflation targeting. I note that central bank credibility is a key outstanding element in explaining the success of inflation targeting. Components such as central bank independence and commitment to low stable inflation as the overriding objective of monetary policy represent critical preconditions for inflation targeting and can sustain the credibility of monetary policy.
Topic:
Monetary Policy, Inflation, Central Bank, Transparency, and Financial Institutions
Political Geography:
Africa and Zambia

120. British Geopolitics and the Internationalization of the Pound Sterling

Author:
Mauricio Metri
Publication Date:
06-2017
Content Type:
Journal Article
Journal:
AUSTRAL: Brazilian Journal of Strategy International Relations
Institution:
Postgraduate Program in International Strategic Studies, Universidade Federal do Rio Grande do Sul
Abstract:
The purpose of this paper is to analyze the historical process of ascent of the pound sterling to the condition of the international monetary standard in the late nineteenth century. It intends to show that England, led by its geostrategy, diplomacy and war, was able to build a colonial empire and negotiate favorable international treaties, at the same time that it constructed a monetary international territory based on its currency.
Topic:
Diplomacy, Military Strategy, Monetary Policy, and Empire
Political Geography:
United Kingdom, Europe, and England