Skip to main content

The New Monetary Disorder

Currency chaos is back, highlighting demands for a revised international monetary order. The rapid decline of the dollar and the pound, but also of the renminbi – now more firmly tied to the dollar than ever – is fanning tensions, while some ghosts of the 1930’s also have returned, particularly the fear that competitive devaluation is creating unfair trade advantages.

PRINCETON – Currency chaos is back, highlighting demands for a revised international monetary order. The rapid decline of the dollar and the pound, but also of the renminbi – now more firmly tied to the dollar than ever – is fanning tensions. Some of the ghosts of the 1930’s have returned, too – in particular, the fear of unfair trade advantages caused by competitive devaluation. United States Treasury Secretary Timothy Geithner has already accused China of currency manipulation.

There are two alternative and sharply contrasting approaches to getting currencies right. One is to have an international conference at which experts can suggest models to calculate exchange rates and politicians can negotiate deals. The only successful instance of such an arrangement is the Bretton Woods conference in 1944, but even then the exchange rates that were fixed there proved unrealistic, and a major wave of parity alterations was soon needed (as well as the maintenance of exchange controls).

Other currency-centered conferences were dismal failures. President Richard Nixon hailed the 1971 Smithsonian agreement as “the most significant monetary agreement in the history of the world.” But it was soon in tatters, and the world moved to generalized floating.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/KwaP5e9;
  1. benami155_ Ilia Yefimovichpicture alliance via Getty Images_netanyahu Ilia Yefimovich/Picture Alliance via Getty Images

    The Last Days of Netanyahu?

    Shlomo Ben-Ami

    In Israel's recent parliamentary election, voters stopped Prime Minister Binyamin Netanyahu's leadership of the country toward xenophobic theocracy. But Israel now faces a period of political deadlock, and it remains to be seen whether Netanyahu really will be politically sidelined.

    2
  2. oneill66_getty images_world Getty Images

    The Return of Fiscal Policy

    Jim O'Neill

    With interest rates at record lows and global growth set to continue decelerating, there has rarely been a better time for governments to invest in infrastructure and other sources of long-term productivity growth. The only question is whether policymakers in Germany and elsewhere will seize the opportunity now staring them in the face.

    1

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions