Front Matter
  • 1 0000000404811396 Monetary Fund
  • | 2 0000000404811396 Monetary Fund


© 1992 International Monetary Fund


© 1992 International Monetary Fund

Library of Congress Cataloging-in-Publication Data

Policy issues in the evolving international monetary system / Morris

  • Goldstein … [et al.].

    • p. cm.—(Occasional paper / International Monetary Fund,

  • ISSN 0251–6365 ; no. 96)

    • Includes bibliographical references.

    • ISBN 1–55775–234–6

    • 1. International finance. 2. Monetary policy. 3. Fiscal policy. 4. Monetary unions. I. Goldstein, Morris. II. Series: Occasional paper (International Monetary Fund); no. 96.

HG3881.P65 1992

332’.042—dc20 92-17080


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  • Preface

    • Part I Mechanisms for Promoting Global Monetary Stability

    • Morris Goldstein and Peter Isard

  • I. Introduction

  • II. Developments in World Economy and Implications for the International Monetary System

    • Changes in Relative Economic Size

    • Relative Inflation Performance

    • International Use of Currencies

    • Patterns of Regional Integration

    • Provision of International Liquidity

    • Implications for Evolution of the System

  • III. Problems with Present System

    • Undisciplined or Ineffective National Policies

      • Fiscal Policies

      • Monetary Policies

      • Structural Policies

    • Excessive Swings in Real Exchange Rates

    • Limited Credibility in Efforts to Manage Exchange Rates

    • Deficiencies in International Liquidity System

  • IV. What Can Be Done?

    • Measures to Strengthen National Policymaking

      • Fiscal Policy Reforms

      • Monetary Policy Reforms

      • Structural Reforms

    • Efforts to Enhance Multilateral Surveillance and Policy Coordination

    • Changes in Nature of Exchange Rate Commitments

  • References

  • Tables

  • Section

  • II 1. Relative Economic Size

    • 2. Consumer Price Inflation Rates Among Industrial Countries, 1954–90

    • 3. Wholesale Price Inflation Rates Among Industrial Countries, 1954–89

    • 4. Consumer Price Inflation Among Developing Countries, by Region, 1971–90

    • 5. Selected Indicators of International Use of Currencies

    • 6. Distribution of Exports by Destination, 1989

    • 7. Distribution of Imports by Origin, 1989

  • III 8. Government Saving in Industrial Countries, 1967–90

    • 9. Relative Volatility of Exchange Rates, 1973–90

  • Charts

  • Section

  • III 1. Volatility of Nominal Exchange Rates, 1961–90

    • 2. Nominal Exchange Rate Indices, 1975–91

    • 3. Effective Exchange Rate Indices, 1975–90

    • 4. Cumulative Changes in Effective Exchange Rate Indices, 1975–90

      • Part II Issues in the Operation of Monetary Unions and Common Currency Areas

      • Paul R. Masson and Mark P. Taylor

  • I. Introduction

  • II. Monetary Policy Issues

    • Facilitating Transactions and Ensuring Price Stability

    • Monetary Policy Institutions in a Currency Union

    • Seigniorage and the Inflation Tax

    • Conclusions

  • III. Traditional Criteria for Successful Currency Unions

    • Factor Mobility

    • Openness and Regional Interdependence

    • Industrial and Portfolio Diversification

    • Wage and Price Flexibility

    • Overview of Traditional Criteria and Response to Shocks

    • Conclusions

  • IV. Fiscal Policy Within Currency Areas

    • Spillovers from National Fiscal Policies

    • Prospects for Budget Discipline

      • Incentives for Excessive Deficits

      • Government Borrowing in Fiscal Federations

    • Fiscal Flexibility and Interregional Transfers

    • Conclusions

  • V. Convergence Issues

    • Real and Nominal Convergence

    • Conclusions

  • VI. Monetary Union—Transitional Issues

    • European Monetary Union

      • The Delors Plan

      • Speed of Transition

    • Sources of Instability in Transition

      • Currency Substitution

      • Speculative Attack

    • Arguments For and Against Rapid Transition

    • The Hard ECU Proposal

    • Conclusions

  • VII. Concluding Remarks

  • References

  • Tables

  • Section

  • III 1. Selected Country Groupings: Intra-Area Trade as Share of Total Trade

    • 2. Selected Industrial Countries: Shares of Exports by Commodity Categories

    • 3. Selected Industrial Countries: Shares of Production by Sector, 1986

  • Charts

  • Section

  • III 1. Dispersion of Unemployment Rates

    • 2. Macroeconomic Stability of EMU

  • V 3. ERM: Maximum and Minimum Rates of Inflation

    • 4. Dispersion of Real Per Capita Output

The following symbols have been used throughout this paper:

  • … to indicate that data are not available;

  • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

  • – between years or months (e.g., 1991–92 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

  • / between years (e.g., 1991/92) to indicate a crop or fiscal (financial) year.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.


This study, which was prepared in the Research Department of the International Monetary Fund, addresses a number of major policy issues in the evolving international monetary system. Part I focuses on mechanisms for promoting global monetary stability, with particular emphasis on ways to strengthen policies and coordination among large countries that have demonstrated the ability to provide nominal anchors for the world economy. Part II focuses on issues in the operation of monetary unions and common currency areas among groups of countries, including some issues that relate specifically to proposals for extending the European Monetary System in the direction of economic and monetary union.

Because this study was prepared during the first half of 1991, it does not take account of the agreement reached at Maastricht by countries of the European Community in December 1991. That agreement sets out a timetable for proceeding to monetary union by January 1, 1999, as well as criteria for determining which countries will do so. Nevertheless, some of the considerations raised in Part II of the study provide background for understanding the implications of economic and monetary union in Europe.

The authors of Part I are Morris Goldstein, Deputy Director of the Research Department, and Peter Isard, Advisor. Part II was written by Paul R. Masson, Chief of the Economic Modeling and External Adjustment Division, and Mark P. Taylor, Senior Economist in that division. Numerous colleagues provided comments and advice. The paper was edited by Elin Knotter of the External Relations Department. The authors alone are responsible for the study; the opinions expressed are theirs and do not necessarily reflect the views of the IMF.

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