Courtesy Reuters

Taking the Monetary Initiative

A World economy must be managed (de facto or de jure) by a mix of national dominance and international policy coördination. As the dominance of the United States shrank over the past decade-in fact if not in the consciousness of all U.S. policy-makers-some degree of integration of policy became necessary, at least among the major nations. The alternative was to risk the benefits of international intercourse by reverting to uncoördinated exercise of autonomous national policies.

The realization of this need, however, was fostered only by crises, such as the London gold flurry in 1960, the convulsions surrounding exchange-rate changes of major currencies in 1961 and 1967, increasing concern about the gold convertibility of the dollar, and most recently by the gold rushes of late 1967 and early 1968. Despite the successive deepening of these perturbations, policy integration progressed far enough each time only to satisfy the decision-makers that they could now avoid repetition of the previous outburst. The plans of the central bankers, like those of the generals, were usually directed to the last battle. It is the thesis of this article that fundamental decisions are needed to place the world economy on a foundation sufficiently firm to avoid fear of disruption by international monetary forces and to prevent the next crisis.

There is nothing new in a call for change in the international monetary system. Most of the proposals, however, have failed in at least one of three respects. Many have concentrated on only one aspect of the international monetary problem, such as the need for assured additions to total world reserves. Many have focused on the major industrialized countries and virtually ignored the problems of the rest of the world. And, most important, many have failed to recognize the very special role of the United States in the world economy and to allow for it systematically in any new monetary arrangements.1

The international monetary problem has three component parts: the adjustment of imbalances in individual countries' balances of payments; the amount

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