Economic and Political Issues for Governments and Firms
New Horizons in International Business series
Edited by Sidney Weintraub, Alan M. Rugman and Gavin Boyd
Chapter 8: Hemispheric monetary cooperation
Gavin Boyd The growth, employment, and community building effects of hemispheric trade liberalization will depend on the development of regional monetary cooperation to facilitate productive interaction between financial sectors and the real economies. For the orderly expansion of regional trade and transnational production, it will be imperative to work collectively for the elimination of exchange rate risks, and this collaboration will have to extend into the management of financial markets, with an emphasis on productive funding and the restraint of potentially destabilizing speculation. The extremely disruptive consequences of high risk and high volume speculation in the USA during the 1990s – speculation which gave impetus to numerous forms of large scale corporate fraud – have indicated the vital importance of linkages between monetary policy and administrative measures for the reform of financial markets. Policy level and corporate understanding of these linkages has been challenged by the difficulties of recovery from the recession in the USA and by the magnitude of exchange rate problems associated with its unsustainable current account deficits. For Latin American states, with pathetic records of macromanagement failures, the clear requirement for regional monetary cooperation has to be recognized with awareness that market led dollarization in their economies, activated mainly by persistent financial crises, will accelerate with hemispheric trade liberalization, despite the problems of macromanagement in the USA. Latin American states are losing elements of monetary sovereignty as their weak currencies are being undercut by the US dollar. This kind of problem was experienced by European states before the formation...
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