Global Monetary Cooperation and the Exchange Rate System
This chapter looks at historical and current frameworks to manage macroeconomic linkages among economies. The basic objective of cooperation in this area is to guarantee the consistency of the macroeconomic policies of major economies, to avoid both unsustainable global booms and crises. This requires an adequate supply of liquidity at the international level, the topic analysed in Chapter 2, as well sustainable payments balances and an adequate exchange rate system, two areas of cooperation analysed here. The chapter looks first at the evolving nature of global imbalances. It then analyses the mechanisms that have been put in place at different times to manage macroeconomic linkages among major economies, before finally considering the current exchange rate ‘non-system’. The chapter claims that exchange rate policy is perhaps the most critical area for which macroeconomic policy cooperation should be strengthened, particularly by moving to a system of reference rates among major currencies.