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The International Monetary System: Essays in World Economics.

The International Monetary System: Essays in World Economics.

By Richard N. Cooper. Cambridge, MA, The MIT Press, 1987. 284 pp. $27.50, cloth; $9.95, paper.

This volume consists of a collection of 13 essays written by Richard N. Cooper between 1969 and 1984. The essays are arranged topically and touch on many of the major issues in international economics and provide insights into the evolution of the international monetary system.

The introduction provides brief summaries of the essays and background on the historical context in which the essays were written. Cooper's role as an adviser to policy makers is also mentioned.

The first essay, published in 1975, outlines the characteristics of alternative international monetary regimes and discusses some of the factors that lead countries to prefer one regime over another. He notes that preferences arise from differences in national objectives and in technical considerations related to the best way to achieve those objectives (for example, the willingness to allow the market to determine exchange rates). Cooper suggests several ways for improving the international monetary system. One is to modify the structure of the International Monetary Fund (IMF) to oversee managed floating exchange rates and to serve as a central bank to central banks. He develops this them more completely in a later essay.

The next three essays discuss aspects of alternative international monetary systems: the gold standard, ways to add more flexibility to a system of fixed exchange rates, and experience under floating exchange rates. The essay on the gold standard, written in 1981, presents a persuasive case that the gold standard did not produce price stability when it was in effect and would not if adopted again. The essay on adding more flexibility to a system of fixed exchange rates, written in 1969, advocates methods to introduce more flexibility into exchange rates, while retaining some of the advantages of fixed exchange rates. Cooper discusses a system of gliding parities with weekly changes of a fixed amount triggered by changes in a country's international reserve position. The essay on experience under floating exchange rates, written in 1980, discusses exchange rate movements during 1973-80 and concludes that floating exchange rates contributed significantly to world economic performance given the severe economic shocks of the period. In a later essay, Cooper amends this conclusion.

The essay on the balance-of-payments process before generalized floating exchange rates, written in 1972, points out that adjustment can occur through changes in aggregate demand, controls on international transactions, or changes in exchange rates. Cooper suggests that changes in exchange rates are the most desirable of these alternatives and that greater flexibility in exchange rates should be emphasized. Of course, generalized floating exchange rates went into effect the following year. The essay on the balance-of-payments adjustment process after floating exchange rates, written in 1976, discusses the surveillance role the International Monetary Fund should play in monitoring exchange rate changes.

The next four essays concern the role of key currencies or principal reserve assets in the international monetary system: two essays on the dollar, one on a common European currency, and one on special drawing rights. The essays on the dollar, written in the early 1970's, point out why the international monetary system is not completely symmetrical with respect to all currencies and why the dollar is likely to remain the key international currency for many years to come. The reason rests on the relative importance of the United States as a trading nation. The 1971 essay discusses the creation of a common currency in the context of monetary cooperation within the European Community. Implications for the international monetary system are discussed. One implication was that greater monetary autonomy from the United States would be possible. The 1983 essay discusses a paper by Peter Kenan that advocates a more important role for special drawing rights. Cooper agrees and suggests that it would be in the Nation's interest to encourage such a role for special drawing rights in order to lessen the burden on the dollar. Cooper argues that domestic policy options in the United States would be expanded if the dollar did not play such a large role in the future.

The final three essays review the international monetary system in the 1980's, suggest an expanded role for the International Monetary Fund, and outline an international monetary system for the future. The essay on the international monetary system in the 1980's, written in 1982, attempts to provide an overview of all aspects of the international monetary system for nonspecialists. The essay emphasizes the role of the international monetary system in balance-of-payments adjustment and in providing international liquidity. The essay on the expanded role for the International Monetary Fund, written in 1983, points out that national central banks evolved into their current roles and that the IMF has also been evolving during the past 40 years. Cooper draws parallels between the evolution of national central banks and the evolution of the International Monetary Fund as a full-fledged central bank for the world. He suggests some of the ways the International Monetary Fund might need to evolve further, including an extended role for special drawing rights and the ability of the Fund to create them. He also suggests an expanded role for the International Monetary Fund in countercyclical world economic stabilization. The essay on an international monetary system for the future is the most recent essay in the volume and is perhaps the most thought provoking. Cooper argues that present international monetary arrangements are not sustainable because movements in real exchange rates are too large and unpredictable under floating rates given relatively free trade and capital movements. This viewpoint differs from the author's earlier view of performance under floating exchange rates. To overcome the difficulties of the present system, Cooper advocates the adoption of a single international currency with a single monetary authority directing monetary policy. Such a system would obviously eliminate exchange rate uncertainty. Cooper recognizes that his proposal is not politically feasible at the present time, but believes that steps in that direction would be highly desirable. The proposal is suggested as a broad initiative; consequently, many of the details of how it would work are omitted.

This collection is quite timely given the growing concern over the international monetary system, in general, and changes in the exchange value of the dollar in particular. Cooper's essays are clearly written and concise. His willingness to alter his viewpoint in the face of changing economic conditions--exemplified by his views on floating exchange rates--reflects the admirable intellectual flexibility of one of the world's leading authorities on international monetary affairs. In short, this collection is a valuable consolidation of information on the international monetary system and its evolution over the past 40 years.
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Author:Holloway, Thomas M.
Publication:Monthly Labor Review
Article Type:Book Review
Date:Jan 1, 1988
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