There does not appear to be any consensus on the International Monetary System's ability to perform its main role-namely, to facilitate international trade. Some people believe that the system has done a remarkable job of greasing the machinery of international financial markets by enabling borrowers to find funds and lenders to get the best returns ever on their assets. At the other extreme are people who would attribute to the post-World War II International Monetary System most, if not all, of the world's problems, from inflation to unemployment to external and internal debt crises. 1
It can be argued that the International Monetary System performed extremely well until 1973, when the fixed exchange rate system collapsed. Since then both the free floating system and the managed float system have performed rather poorly. The main criticism of floating exchange systems is that they encourage short-term speculative behavior at the expense of long-term economic growth and development projects. For this reason, critics would like to see the world return to some type of fixed exchange rate system or gold standard.
Most government officials outside of the United States still work under the assumption that even though the floating rate system is not completely faultless, it remains the only viable system. As Roland Leuschel, an economic advisor to Banque Bruxelles Lambert, put it:
The floating rate system has helped produce the highest postwar unemployment in the Organization for Economic Cooperation and Development, but it is an honorable one; it is partly responsible for the
accumulation of the highest nominal debt ever in the world, but it is an honorable system; it has created the highest current-account imbalances, but it is an honorable system; it has helped push up the real interest rates to perilous levels, but it is an honorable system; it has produced a rapid swing from high inflation to a deflationary environment, but it is an honorable system. 2
On this side of the Atlantic, Robert Mundel from Columbia University warned as early as 1983, "The floating exchange rate system did not provide discipline or monetary restraint. On the contrary, it provided inflation, unrepayable debt and de facto bankruptcy." 3
Although space limitations do not permit a thorough analysis and evaluation of the International Monetary System's performance, the following sections will point out some of the most obvious problems of the contemporary international financial scene.
- 1025 reads
