Financial Markets, Money and the Real World
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Financial Markets, Money and the Real World

Paul Davidson

Paul Davidson investigates why the 1990s was a decade of financial crises that almost precipitated a global market crash. He explores the reasons why the global economy still struggles with the aftermath of these crises and discusses the possibility that volatile financial markets in the future will have real impacts on whole industries and national economic systems.
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Chapter 14: The Architectural Solution: Reforming the World’s Money

Paul Davidson


The 1950–73 global golden age of economic development required international institutions and policies that operated on principles inherent in Keynes’s 1940s proposals for a new international payments system. The analysis of the last five chapters of this volume has provided the theoretical foundations for comprehending the need for (a) reforming the world’s money in the twenty-first century and (b) updating Keynes’s original proposal for a postwar international monetary scheme 14.1 REFORMING THE INTERNATIONAL PAYMENTS SYSTEM In the twenty-first century interdependent world economy, a substantial degree of economic cooperation among trading nations is essential. Keynes’s original ‘bancor’ plan for reforming the international payments system required the creation of a single supranational central bank. At this stage of the evolution of world politics, however, a global supranational central bank is politically neither feasible1 nor necessary. The following Post Keynesian proposal does not require the establishment of a supranational central bank even if this is believed desirable on other grounds. The clearing union institution suggested in this chapter is a more modest proposal aimed at obtaining an international agreement that does not require surrendering national control of either local banking systems or domestic monetary and fiscal policies. Each nation will still be able to determine the economic destiny that is best for its citizens without fear of importing deflationary repercussions from their trading partners. Nor will each nation be able to export domestic inflationary forces to their international neighbors. What is required is a closed, double-entry bookkeeping clearing...

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