New Directions in Modern Economics series
Edited by Riccardo Bellofiore and Giovanna Vertova
Chapter 8: A structural monetary reform to reduce global imbalances: Keynes’s plan revisited to avert international payment deficits
The global financial crisis that broke out in 2007 is the result of a structural disorder that has been increasingly harming the world economy since the full ‘demonetization’ of gold in international transactions. Under the international gold (-exchange) standard, as a matter of fact, foreign trade imbalances were settled by a transfer of property rights on the equivalent stock of gold between the countries involved. International payments were thus final, as they left surplus countries with no further claims on deficit countries, both defined as the set of their own residents. Since the so-called post-Bretton Woods regime put the US dollar at centre stage in international finance, by way of contrast, international payments have become provisional, as settlements for foreign transactions are carried out using so-called key currencies, which are, in fact, simply promises of payment, as they do not imply the transfer of their object (namely, bank deposits) from the payer to the payee country. To be sure, no unit of US dollar deposits can leave the national banking system when any US importer finally pays an exporter residing in the rest of the world. This is so because of the book-entry nature of bank deposits, and has nothing to do with agents’ behaviour. Indeed, the agent who imports any items from the rest of the world, finally pays their exporters when s/he disposes of the required amount of bank deposits.
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