Robert A. Mundell

The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates

I. Introduction, 227. — II. The static system, 229. — III. The dynamic systems, 233. — IV. The crucial role of capital movements, 237. — V. Foreign exchange reserves, 242. — VI. Speculation, 246. — VII. Concluding remarks, 249. — Appendix, 251.

Prospects for an Asian currency area

Abstract Let me say how delighted I am to be able to take part in this 24th ACAES conference in Beijing. In my remarks today I want to focus on some features of the world economy that have a special impact on the Asian economy and are relevant for the making of macroeconomic policy in China.

The economics of common currencies

Foreword Robert A Mundell Participants Introduction Harry G Johnson and Alexander K Swoboda Part 1: The Economics of Fixed Exchange Rates 1. Two Arguments for Fixed Rates Arthur B Laffer Comments Gottfried Haberler, Bela Balassa 2. The Flexibility of the Gold-Exchange Standard and Its Limits Jurg Niehans 3. The Price-Specie-Flow Mechanism and the Gold Exchange Standard: Some Exploratory Empiricism Relating to the Endogeneity of Country Money Balances Thomas J Courchene 4. The Dual Currency System Revisited Ronald I McKinnon Part 2: The Economics of Common Currency Areas 5. Some Early Views on Monetary Integration Thomas Guggenheim 6. The Theory of Optimum Regional Associations Herbert G Grubel 7. Uncommon Arguments for Common Currencies Robert A Mundell 8. Policy Conflict, Inconsistent Goals and the Co-ordination of Economic Policies Alexander K Swoboda 9. A Plan for a European Currency Robert A Mundell Comment Bela Balassa 10. The Impact of External Markets for National Currencies on Central Bank Reserves Robert Z Aliber 11. Joint Balance: Capital Mobility and the Monetary system of a Currency Area Sven W Arndt 12. Optimum Currency Areas and Latin America Alexandre Kafka Part 3: The Economics of Flexible Exchange Rates 13. The US Balance of Payments: Freedom or Controls Gottfried Haberler 14. Flexing the International Monetary System: The Case for Gliding Parities Richard N Cooper 15. Specific Proposal for Limited Exchange Rate Flexibility William Fellner 16. Flexible Exchange Rates and Traded Goods Prices: The Role of Oligopoly Pricing in the Canadian Experience Robert M Dunn, Jr. 17. The Optimal Rate of Devaluation Ruben Almonacid Manuel Guitian. Index

The Dollar and the Policy Mix

Almost two decades ago I wrote a monograph titled The Dollar and the Policy Mix: 1971 (Mundell [5] (*)). It arose from a talk I had given in February 1971 at a US Treasury Consultants’ meeting presided over by Paul Volcker, then undersecretary of the Treasury, and by Secretary John B. Connally, who had returned from his confirmation proceedings that very day. My talk was in answer to a question prepared by the late Henry Wallich, then a professor at Yale University and adviser to the Treasury, who had organized the proceedings: “Is the balance of payments deficit a menace to the dollar?”

What the euro means for the dollar and the international Monetary system

This article begins by analyzing the hirtorical importance of the introduction of the euro, the convergence criteria for membership in the European Monetary Union, the merits and defects of the euro as an international rival to the dollar, and the characteristics that have made past international currencies great. It goes on to consider the institutional gap in the world system arising from the absence of an official world currency and the threat to stability that arises in transition periods when a new international reserve asset or currency is phased in. It is argued that the introduction of the euro will involve diversification from the dollar that will require multilateral attention to the dollar-euro exchange rate.

Currency areas, volatility and intervention

Abstract On January 1, 1999, the euro was launched with eleven members and it instantly became the second most important currency in the world. It may prove to be the most important event in the history of the international monetary system since the dollar took over from sterling the role of dominant international currency. For the time being the mainstream of the world economy will be characterized by a tripolarism based on the dollar, euro and yen. The new situation raises some old questions: Is the currency configuration of the world economy optimal? How many currencies does the world need? Which countries belong in a currency area? What is the optimum currency area? This article will discuss the currency composition of the world economy today. It will discuss the prospects for expansion of the major currency areas and the problems arising from the volatility of exchange rates between them. It will argue that a restoration of a system of fixed exchange rates would have to begin with stabilization of the exchange rates between the dollar, euro and yen, and that a step in the right direction would be to evolve policies that provide for intervention in the foreign exchange market.

The Euro and the Stability of the International Monetary System

The introduction of the euro at the beginning of 1999 promises to mark a turning point in the international monetary system. It is often compared with the transformation of the international monetary system in the early 1970s from the system of fixed exchange rates endorsed at the Bretton Woods conference to the regime of managed flexible exchange rates. But in fact its significance is deeper. The collapse of the Bretton Woods arrangements did not alter the power configuration of the international system. Both before and after the breakdown, the dollar was the dominant currency. The introduction of the euro, on the other hand, will challenge the status of the dollar and alter the power configuration of the system. For this reason the introduction of the euro may be the most important development in the international monetary system since the dollar replaced the pound sterling as the dominant international currency soon after the outbreak of World War I.1

Transport Costs in International Trade Theory

Transport costs have been somewhat neglected in international trade theory, most of which is expounded on the assumption that transport costs are absent. In this paper I shall present a simple geometric method for describing transport costs in offer-curve diagrams, and apply this method to consider the effects of transport costs on the terms of trade, the transfer problem, the optimum tariff, and real factor returns. To avoid introducing a third industry—the transport industry—it will be necessary to employ a drastic, but very useful assumption regarding the nature of transport costs. I shall assume that transport costs are met by the wastage of a proportion of the goods traded. This assumption will mean that: if each country provides the resources for transporting its own exports, then only a proportion of the goods exported will be received as imports by the other country, the remainder being used up as costs of transport; if each country provides the resources for transporting its imports, then a proportion of its exports will be used up for every unit of the other countrys good imported; and if each country shares in the transport of each good, some of each countrys resources will be used up in transporting each good. The meaning of this assumption will become clearer later in the paper.

The international monetary system: The missing factor

Abstract Are present international monetary arrangements optimal? My answer is no. There is a missing ingredient in the international monetary system. The missing ingredient is a world currency, and until such a facility is created, the existing arrangements, while likely to continue, will be, at best, second best. Restoration of the gold standard at the current dollar price of gold, however, would result in deflation if the restoration led to an increase in the demand for gold (as it undoubtedly would). Gold would again become a standard of value if and only if it were made stable in terms of currencies.

The Euro as a Stabilizer in the International Economic System

Contributors. Preface. Acknowledgments. Introduction. Part I: The Viability of the Euro. 1. A New Bi-Polarity? C.P. Kindleberger. 2. The Theoretical and Historical Perspectives on the Emergence of the Euro R. Skidelsky, K. Nikolov. 3. External Relations of the Euro Area C.R. Henning. 4. The International Political Implications of the Euro R. Rosecrance. 5. The Euro and the Stability of the International Monetary System R. Mundell. Part II: Management of the Euro. 6. The Euro and Its Consequences for Global Capital Markets N. Walter. 7. Impact of the Euro on Members and Non-Members J.A. Frankel. 8. Exchange Rate Policy-Making in the Euro Area: Lessons From Trade? K.G. Deutsch. 9. Reinforcing European Integration to Promote the Euro: A Range of Policy Options P. Maillet. 10. Currency Crises and Capital Controls in Emerging Countries: The Case of the African CFA Franc and Its Euro Future E.-M. Maria Claassen. Part III: The Euro in the International Economy. 11. Key Currencies After the Euro R.N. Cooper. 12. The Political Economy of the Euro as an International Currency J.A. Frieden. 13. The Prospect for Global Monetary Bilingualism G.M. Ambrosi. 14. The Euro and the Outsiders: The Case of the Swiss Franc J. Baumberger. 15. The Euro and the Dollar: Currency Competition, Competitiveness and Policy Coordination C. de Boissieu. 16. The Impact of the Euro on the International Stability: A Chinese Perspective M. Xu. PartIV: Conference Sessions. Session 1: Monetary Leadership and Economic Stability: The Lessons of the Pound and the Dollar. Session 2: Monetary Leadership and Economic Stability in a Globalizing World. Session 3: The Emergence of the Euro and Its Future Position vis-a-vis Other Leading Currencies. Session 4: The Impact of the Euro on International Stability. Session 5: The Institutional Implications of the Euro. Session 6: What Should Be the Euros International Role? Part V: Keynote Session. Conference Participants. Pictures Taken at the Conference. Index of Contributors.