| By: |
Pietro Alessandrini (Department of Economics, Università Politecnica delle Marche, Ancona);
Michele Fratianni (Department of Business Economics and Public Policy, Indiana University Kelley School of Business) |
| Abstract: |
There is a broad consensus that the current, large U.S. current-account
deficits financed with foreign capital inflows at low interest rates cannot
continue forever; there is much less consensus on when the system is likely to
end and how badly it will end. The paper resurrects the basic principles of
the plan Keynes wrote for the Bretton Woods Conference to propose an
alternative to the current international monetary system. We argue for the
creation of a supranational bank money that would coexist along side national
currencies and for the establishment of a new international clearing union.
The new international money would be created against domestic earning assets
of the Fed and the ECB. In addition to recording credit and debit entries of
the supranational bank money, the new agency would determine the size of
quotas, the size and time length of overdrafts, and the coordination of
monetary policies. The substitution of supranational bank money for dollars
would harden the external constraint of the United States and resolve the n-1
redundancy problem. |
| Keywords: |
Keynes Plan, external imbalances, exchange rates, international monetary system, key currency, supranational bank money |
| JEL: |
E42 E52 F33 F36 |
| Date: |
2007–11 |
| URL: |
http://d.repec.org/n?u=RePEc:iuk:wpaper:2007-19&r=pke |