Future Ims 2011 04 3
The Future of the International Monetary System
The Future of the International Monetary
System
by Ansgar Belke, Kerstin Bernoth and Ferdinand Fichtner
The financial crisis of 2007/2008 and the current “Euro crisis” challenge the current global monetary system. They drastically reveal the actual system’s weaknesses und show the eminent importance of the international monetary system for the stability of markets and national economies. DIW Berlin was commissioned by the Federal
Ministry of Finance to research possible alternatives to the existing exchange rate regime. In principle, neither of the two extremes – completely free or fixed exchange rates – is suitable. A mixed system is preferable – with improvements to the status quo, though. An exchange rate regime with few big currency areas, which are linked to each other with flexible exchange rates, should be the aim of reforms. This should correspond to a multi-polar key currency system with the currently dominating US Dollar and the Euro as well as the
Chinese Renmimbi as most important actors. These developments should be accompanied by substantial improvements in the regulatory framework of the financial markets. Necessary elements are a reinforced global and especially European economic coordination and an internationally agreed-on, assertive financial market authority.1
1 This report is based on a comprehensive study on the same topic carried out by DIW Berlin on behalf of the Federal Ministry of Finance. See Belke, A., Bernoth, K., Fichtner, F. (2011): Die Zukunft des internationalen Währungssystems. DIW Berlin: Politikberatung kompakt (currently being published).
Over the past 150 years, the global monetary system has seen a number of varying degrees of links between different currencies (Box 1). Periods of very strong ties between the main currencies of the global economy (like during the gold standard or the Bretton Woods system) alternated (at least shortly) with regimes of relatively
high
The Future of the International Monetary
System
by Ansgar Belke, Kerstin Bernoth and Ferdinand Fichtner
The financial crisis of 2007/2008 and the current “Euro crisis” challenge the current global monetary system. They drastically reveal the actual system’s weaknesses und show the eminent importance of the international monetary system for the stability of markets and national economies. DIW Berlin was commissioned by the Federal
Ministry of Finance to research possible alternatives to the existing exchange rate regime. In principle, neither of the two extremes – completely free or fixed exchange rates – is suitable. A mixed system is preferable – with improvements to the status quo, though. An exchange rate regime with few big currency areas, which are linked to each other with flexible exchange rates, should be the aim of reforms. This should correspond to a multi-polar key currency system with the currently dominating US Dollar and the Euro as well as the
Chinese Renmimbi as most important actors. These developments should be accompanied by substantial improvements in the regulatory framework of the financial markets. Necessary elements are a reinforced global and especially European economic coordination and an internationally agreed-on, assertive financial market authority.1
1 This report is based on a comprehensive study on the same topic carried out by DIW Berlin on behalf of the Federal Ministry of Finance. See Belke, A., Bernoth, K., Fichtner, F. (2011): Die Zukunft des internationalen Währungssystems. DIW Berlin: Politikberatung kompakt (currently being published).
Over the past 150 years, the global monetary system has seen a number of varying degrees of links between different currencies (Box 1). Periods of very strong ties between the main currencies of the global economy (like during the gold standard or the Bretton Woods system) alternated (at least shortly) with regimes of relatively
high