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The Future of the International Monetary System

Edited by Marc Uzan

Is the international financial architecture debate over? Not according to leading experts gathered together in this impressive volume who try to identify the key trends that will fashion the international financial system in the years ahead. As history has shown, the evolution of the international monetary system is a slow process. However, the authors argue that we may be entering a new era in which a combination of factors will have lasting consequences on the functioning of the international monetary system and the future role of the IMF.
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Chapter 3: The future of the international monetary system: how long is the long run?

John Murray


John Murray1 INTRODUCTION The world is getting smaller in the sense that the global economy is becoming ever more integrated and interconnected. Goods, services, capital and labor all flow more freely; and developments in any one region – whether good or bad – are more likely to influence activity elsewhere. The implications of this integrative process for the near-term evolution of the international monetary system have been the subject of considerable debate and disagreement. Many economists, however, have suggested that the long-run consequences are clear. Eventually the global economy will operate much like a traditional national economy – with a single universal currency, a single monetary authority, and a single (integrated) financial market. How one gets to this centralized state is less obvious.2 Fischer (2000) has noted that the transformation of the international monetary system will likely involve an intermediate step, in which the number of currencies in the world economy initially expands, after which the international monetary system will begin to shrink, until eventually only a single currency remains. Centrifugal forces will dominate in the short term, but centripetal forces will subsequently gain the upper hand, and the system will begin to collapse – much like the physical universe. At some point, in other words, economic gravity will take hold and the global economy will condense to a single integrated system. Many observers believe that the gradual disappearance of national currencies will be matched by a similar concentration of international capital markets and the emergence of a single monetary/supervisory authority for the...

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