The International Monetary System in the Last and Next 20 Years

49 Pages Posted: 11 Jul 2006

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Raul Razo-Garcia

University of California, Berkeley - Department of Economics

Abstract

The last two decades have seen far-reaching changes in the structure of the international monetary system. Europe moved from the European Monetary System to the euro. China adopted a dollar peg and then moved to a basket, band and crawl in 2005. Emerging markets passed through a series of crises, leading some to adopt regimes of greater exchange rate flexibility and others to rethink the pace of capital account liberalization. Interpreting these developments is no easy task: some observers conclude that recent trends are confirmation of the 'bipolar view' that intermediate exchange rate arrangements are disappearing, while members of the 'fear of floating school' conclude precisely the opposite. We show that the two views can be reconciled if one distinguishes countries by their stage of economic and financial development. Among the advanced countries, intermediate regimes have essentially disappeared; this supports the bipolar view for the group of countries for which it was first developed. Within this subgroup, the dominant movement has been toward hard pegs, reflecting monetary unification in Europe. While emerging markets have also seen a decline in the prevalence of intermediate arrangements, these regimes still account for more than a third of the relevant subsample. Here the majority of the evacuees have moved to floats rather than fixes, reflecting the absence of EMU-like arrangements in other parts of the world. Among developing countries, the prevalence of intermediate regimes has again declined, but less dramatically. Where these regimes accounted for two-thirds of the developing country subsample in 1990, they account for a bit more than half of that subsample today. As with emerging markets, the majority of those abandoning the middle have moved to floats rather than hard pegs. The gradual nature of these trends does not suggest that intermediate regimes will disappear outside the advanced countries anytime soon.

Suggested Citation

Eichengreen, Barry and Razo-Garcia, Raul, The International Monetary System in the Last and Next 20 Years. Economic Policy, Vol. 21, No. 47, pp. 393-442, July 2006. Available at SSRN: https://ssrn.com/abstract=916598 or http://dx.doi.org/10.1111/j.1468-0327.2006.00164.x

Barry Eichengreen (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Raul Razo-Garcia

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

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