International Monetary and Financial Arrangements: Present and Future

The paper deals with a broad range of topics under the rubric of the international monetary system: exchange rate agreements, International Monetary Fund structure, history and functioning of the European Monetary Union, monetary and fiscal policies adopted in recent years by different countries, with a special emphasis on central bank independence and inflation control, capital flows and cross-border assets growth and their influence on financial stability, and policy proposals to enhance financial stability. With more than four-fifths of world trade conducted under managed or full flexibility the present system can be regarded more as a flexible than a fixed exchange rate regime. EMU is a major institutional innovation; while its economic benefits have been amply discussed and perhaps exaggerated, the economic costs seem to have been underestimated. Financial liberalization has resulted in huge benefits to savers and borrowers as capital has tended to flow to its most productive uses around the world, but it has also led to fears that this has sharply reduced the effectiveness of monetary policy. This liberalization imposes a constraint on monetary policy in the sense that it forces a much higher degree of economic convergence than was true before. Copyright Kluwer Academic Publishers 1998central bank independence, early-warning system, euro, European Central Bank, European Monetary System, European Monetary Union, exchange rate arrangements, exchange rate mechanism, global financial integration, International Monetary Fund, international monetary system, international policy coordination, optimum currency area, target zones,