Resurrecting Keynes to Stabilize the International Monetary System

34 Pages Posted: 20 Nov 2007 Last revised: 12 May 2014

See all articles by Michele U. Fratianni

Michele U. Fratianni

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Universita' Politecnica delle Marche

Pietro Alessandrini

Università Politecnica delle Marche - Faculty of Economics

Date Written: December 4, 2008

Abstract

There is a broad consensus that the current, large U.S. current-account deficits financed with foreign capital inflows at low interest rates cannot continue forever; there is much less consensus on when the system is likely to end and how badly it will end. The paper resurrects the basic principles of the plan Keynes wrote for the Bretton Woods Conference to propose an alternative to the current international monetary system. We argue for the creation of a supranational bank money that would coexist along side national currencies and for the establishment of a new international clearing union. The new international money would be created against domestic earning assets of the Fed and the ECB. In addition to recording credit and debit entries of the supranational bank money, the new agency would determine the size of quotas, the size and time length of overdrafts, and the coordination of monetary policies. The substitution of supranational bank money for dollars would harden the external constraint of the United States and resolve the n - 1 redundancy problem.

Keywords: Keynes Plan, external imbalances, exchange rates, international monetary system, key currency, supranational bank money

JEL Classification: E42, E52, F33, F36

Suggested Citation

Fratianni, Michele and Alessandrini, Pietro, Resurrecting Keynes to Stabilize the International Monetary System (December 4, 2008). Available at SSRN: https://ssrn.com/abstract=1031346 or http://dx.doi.org/10.2139/ssrn.1031346

Michele Fratianni (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-3360 (Phone)
812-855-3354 (Fax)

Universita' Politecnica delle Marche ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
39-071-2207120 (Phone)

Pietro Alessandrini

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

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