Chapter 6: International Money: Building Trust in an Underinstitutionalized Environment
6. International money: building trust in an underinstitutionalized environment 6.1 INTRODUCTION ‘No central bank can be greater than its own State – the creature greater than the creator.’1 Montagu Norman, architect of the gold exchange standard and champion in the 1920s of a kind of ‘Internationale of central banks’, was in no doubt. Central banks were founded on the legitimacy that came from their being part of the state apparatus. For him, the ideal of a supranational central bank was sheer illusion. Yet nowadays the European System of Central Banks (ESCB) is a reality, observed with interest in other geographical areas as a possible model to copy. Indeed there are some who see in the International Monetary Fund (IMF) – in the way it developed after the abandonment of the exchange rate regime conceived at Bretton Woods, above all as a response to the massive increase in international capital mobility in the 1990s – the harbinger of a world central bank. What changed in the duties and prerogatives of the nationstate, in the very concept of central banking, to determine such a radically new perspective? Post-Second World War monetary history can actually be read as a repeated attempt to refute Montagu Norman’s affirmation. True, the fiat standard established itself as a form of emancipation from the economic policy constraints imposed by adherence to the gold standard. What made it an expression of monetary nationalism was its greater flexibility of supply and the fact that it lent itself to being actively managed with collective...
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