This paper explores the relationship between debt, growth, and
poverty and the international monetary system. With a well-functioning
international monetary system, economic policy works well, instruments
are assigned to targets appropriately, and discipline is maintained. The
fixed exchange rate is contrasted with alternative monetary rules. The
monetary rule is the weakest system; monetary targeting has failed in
every country in which it has been tried. An advantage of the fixed
exchange rate is the clue it provides to the price level, interest rate,
and future monetary policy. Other things being equal, the use of a
currencies basket is inferior to a single currency peg, while a freely
floating exchange rate system puts itself at the mercy of speculators.
The paper points out the conditions for a successful currency area as a
consensus on a common inflation rate; a common basket of goods with
which to measure inflation; exchange rate that must be locked; member
countries must adopt a common monetary policy; and a formula must be
devised for distributing and using the seigniorage profits from monetary
expansion. There is a need to study the possibility of an Asian currency
area and the links between the APEC and the SAARC. Regular and mutual
surveillance on monetary, fiscal, and exchange rate convergence, and
policies that minimise exchange rate uncertainty and work towards a
currency club area based on a common anchor— initially the dollar—are
needed. Setting up of an Asian Monetary Fund is also suggested, one that
is closely modelled on the original IMF articles of agreement and will
provide an anchored fixed exchange rate system.
Debt, Growth, and Poverty in the International Monetary System
(The Quaid-i-Azam Memorial Lecture)
