COMMENTS WELCOME Do We Need an International Lender of Last Resort1

The world monetary system has changed dramatically from the arrangements envisaged at Bret on Woods in 1944, or indeed from any previous international economic experience. The Br tto Woods system envisaged a world of pegged but adjustable exchange rates, with countries linked together by mainly by trade but not capital movements. The global gold standard of the pre-World War I era, which covered a remarkable 89 percent of the world's population in 1908, was a system of high international capital mobility but almost no unbacked fiat money. The world of 1995 is a world of high capital mobility and the nearly universal use of backed fiat money. It is perhaps not surprising that the world system has taken time to adjust to the new combination of arrangements. As Milton Friedman has repeatedly stressed, the novelty of fiat money first became dramatically apparent only after 1971, since up to that date, most of the world's fiat moneys were managed mainly to preserve a pegged exchange rate with the U.S. dollar. Only after 1971 have we had a worldwide, peacetime experience with fiat moneys not anchored by a single currency. This novelty probably helps to explain the worldwide inflation that occurred in the early and mid-1970s, as countries adjusted to their new monetary independence. Since that then, the experience has tended to show that most of the stable advanced democracies have succeeded in establishing domestic monetary institutions capable of preserving low inflation over a sustained period of time. The second novelty was the return to high capital mobility in the 1970s, after nearly 60 years of collapse i