Multilateral Rule-Based Trade and Exchange Rate Regimes

Chiara Oldani

LUISS Guido Carli University; University of Viterbo Dept of Economics; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

July 21, 2010

Securing the Global Economy, Forthcoming

The role of the Group of Eight (G8) is that of international coordination, not of imposing rules on participants. Its consultative nature, however, does not preclude the improvement of mutual rules and the functioning of the market. An international challenge G8 countries are compelled to face is that of reserve currencies (i.e. the US dollar and the euro according to the official BIS statistics), with a flexible exchange rate between them, along with an emerging currency (the yuan-renminbi) pegged to the dollar and some currencies with a dirty exchange rate regime. The result is that global competition is distorted by “artificial” foreign values of national currencies, which permit an accumulation of an enormous current account surplus and a consequent stockpiling of foreign exchange reserves. The use of these reserves for gaining political influence transfers the problem from the area of geo-economics to that of geopolitics, forcing the G8 to figure out a solution. The progressive trade liberalisation forces the adoption of flexible exchange rates. But large emerging countries are considering alternative solutions in order to maintain their trade surplus and increase their foreign exchange reserves. Moreover, they do not want to lose the political power implied by such a high amount of sovereign currency and bonds. The G8 should address this situation and push for a solution to the Doha Development Agenda.

Empirical evidence supports the idea that a devaluation of the US dollar could not improve the American trade deficit, nor could it significantly decrease the emerging countries’ surplus and reserves, but would significantly damage European exports. The solution to the three problems — different exchange rate regimes, excessive official reserves held by non-US residents, revaluation of the euro regardless of balance of payments equilibria — cannot be solved by the market. This conclusion is supported by the consensus that has emerged on money creation after 200 years of dispute among academics, bankers and political groups.

Keywords: exchange rate regime, trade, China, EU

JEL Classification: F32, F33

Not Available For Download

Date posted: July 23, 2010  

Suggested Citation

Oldani, Chiara, Multilateral Rule-Based Trade and Exchange Rate Regimes (July 21, 2010). Securing the Global Economy, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1646384

Contact Information

Chiara Oldani (Contact Author)
LUISS Guido Carli University ( email )
Via O. Tommasini 1
Rome, Roma 00100
University of Viterbo Dept of Economics ( email )
Via Palmanova
Viterbo, 00110
HOME PAGE: http://www.didattica.unitus.it/web/interna.asp?idCat=1689&idDoc=365&idDip=4
Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )
ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Feedback to SSRN

Paper statistics
Abstract Views: 223

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 1.094 seconds