Reshaping The International Monetary Architecture: Lessons From Keynes' Plan
Policy Research Working Papers
As we witness profound changes in the global economy, and as it becomes apparent that the so-called "Revived Bretton Woods System" may be nothing more than a temporary non sustainable financing of the US structural internal imbalance, favored by the global role of the dollar, which has increased the overall vulnerability of the global financial architecture, it's worth revisiting the origins of the Bretton Woods conference, and pointing out the relevance for today's framework of Keynes'
... of Keynes' original 1942 plan for an International Clearing Union. In this note we explore the main characteristics of Keynes' original plan, by revisiting his original writings between 1940 and 1944, and we outline its relevance to the current debate on the international financial architecture, We'll argue that reforms of the international financial architecture should include anchoring the international monetary system on a sounder institutional ground. JEL Classification Codes: E00, E12, E42, E50, E58, F02, F33, N20 These are the views of the author and need not reflect those of the World Bank or any affiliated organization. Email: email@example.com clearing bank). Keynes plan originated in his ambition to finally set the international trade on sound monetary basis, supporting the evolution toward an international division of labor and the exploitation of natural resources in foreign countries. Keynes considered such reform critical to the post-war world order. He blamed "impoverishment, and social discontent and even wars and revolutions" on the "secular international problem" of balance of payment imbalances (ibidem), pointing out that this failure can be traced to a "single characteristic": almost all the international monetary settings used in the past five hundred years "throw the main burden of adjustment on the country which is in the debtor position on the international balance of payments" (p. 27). Keynes suggested a new institutional framework, in the form of a US-UK founded system of international clearing, the operation of which would facilitate reequilibration of global imbalances, by stressing the need of a symmetric rebalancing which would involve both countries, in debtor and creditor position. The aim was to secure creditor adjustment while maintaining debtor discipline. "The chief initiative" would rest on the country which finds itself in a creditor position against the rest of the world, hereby avoiding the "contractionist pressure against the world economy and, by repercussion, against the economy of the creditor country itself" (p. 47). Following the Keynesian logic, global imbalances should not lead to corrections through contraction of imports, but would be better dealt with by expansion of opportunities of exports.