From: Richard N. Cooper, “Is there a Need for Reform?” Speech given at a Federal Reserve Bank of Boston conference, May 1984.Exchange rates can be most credibly fixed if they are eliminated altogether, that is, if international transactions
take place with a single currency.
But a single currency is possible only
if there is in effect a single monetary policy, and a single authority issuing the
currency and directing the monetary policy. How can independent states accomplish
that? They need to turn over the determination of monetary policy
to a supernational body, but one which is responsible to the governments of...
The currency of the Bank of Issue could be practically anything, an
evolution from the Canadian dollar, the Swedish krona, the ECU, or the
SDR.
Most natural would be an evolution from the present U.S. dollar, making
use of the extensive dollar-based worldwide markets. But if that were not
politically acceptable, it could be a synthetic unit which the public would
have to get used to, as it had to get used to the metric system when that
replaced numerous national systems. The key point is that monetary control--
the issuance of currency and of reserve credit--would be in the hands
of the new Bank of Issue, not in the hands of any national government, no
matter what the historical origin of the new currency happened to be.If the objective of a single currency is thought to be desirable, compared
with the likely alternatives, are there steps we should be taking now to work
toward that objective?..
To fix the time
frame, let us go forward 25 years, to the year 2010. That is far enough ahead
so that many changes from now are plausible. Developments that are completely
unrealistic in the next five or ten years can be contemplated. But it is
not so far ahead that we cannot really contemplate it at all. Many of us will
still be around and functioning at that time, and it is only as far ahead as the
year 1960 is behind us, and no doubt that is still a fresh memory to most of
30 THE INTERNATIONAL MONETARY SYSTEM
us. I propose first to sketch a set of arrangements which I believe will deal
with the problems in the present setup. If this proposed scheme is agreeable,
we can then ask what interim steps will be useful to get from here to there.
IV. A Monetary Scheme for the Year 2010...
...This is a politically difficult step and
cannot be taken
overtly any time soon, since each nation has its formal system of decisionmaking
and channels of responsibilities for determining monetary policy...
I have put forward a radical alternative scheme for the next century: the
creation of a common currency for all of the industrial democracies with a
common monetary policy and a joint. Bank of Issue to determine that monetary
policy. Individual countries would be free to determine their fiscal policy
actions, but those would be constrained bythe need to borrow in the international
capital market. Free trade is a natural but not entirely necessary complement
to these macroeconomic arrangements.
This proposal is far too radical for the near future, but it could provide a
"vision" or goal which can guide interim steps in improving international
monetary arrangements, and by which we can judge the evolution of national
economic policy.
