Looking to the Future, Lessons from the Past

Issued: Mon, 11 Jan 2010 14:22:00 GMT

In December 2009 Catherine Schenk, Professor of International Economic History, co-organised a meeting at the International Monetary Fund in Washington on 'The International Monetary System: Looking to the Future, Lessons from the Past'. The essential purpose of the international monetary system is to support trade of goods and services, facilitate risk diversification and consumption smoothing through capital flows, and promote smooth external adjustment. Viewed against these objectives, the current system exhibits several anomalies: capital frequently flows from poor to rich countries; developing and emerging market countries maintain high levels of international reserves; and adjustment is both asymmetric between surplus and deficit countries and often delayed, resulting in periodic crises. The meeting was co-sponsored by the ESRC and the IMF and drew together participants from the USA and Europe to discuss the development of the international monetary system.  

Professor Schenk's contribution (brief available via link on right) addressed lessons from the past, and a text is available here. Schenk argued that the role of sterling as an international reserve currency persisted longer than it is usually assumed, and that the gradual decline after 1950 required deliberate, and sometimes costly, multilateral support from both developing and developed countries. A similar strategy for the US dollar seems unlikely in today's economic and political climate.  She also noted that many reforms of the international monetary system today, such as substitution accounts for US dollar reserves and greater use of the SDR as a reserve asset, were debated and rejected in the 1970s and 1980s.  The obstacles of governance and the allocation of exchange risk suggest that these solutions will prove difficult to implement today, just as they did in the past. 

The contribution of E. (Ted) Truman of the Peterson Institute for International Economics has recently been published.