Globalization/deglobalization: lessons from liberal monetary orders

Economic globalization never proceeded in a smooth steady trajectory. The current international economy, organized around liberal principles, faces potential problems unleashed by the COVID-19 pandemic. Two popular theoretical approaches offer varying reasons for the survivability of the contemporary order. One stresses the benefits associated with participating in liberal international orders, claiming such arrangements are essentially self-sustaining. The rival view emphasizes the uneven distribution of gains, emphasizing the role of leadership, especially for dampening crises. To examine the support for each argument, I examine the evolution of international monetary arrangements. International monetary orders lie at the heart of liberal international economies; no prior liberal monetary order has proven self-sustaining. Liberal international monetary sub-orders depend upon leadership as much as cooperation for their survival—leaders exert efforts to shape followers' actions so long as the leader draws sufficient benefits to make such efforts worthwhile. The economic disruption caused by the COVID-19 pandemic provides the latest illustration of this point, though these arguments also suggest experiences across issue-areas will vary.

Cryptocurrencies: technology, initiatives of banks and central banks, and regulatory challenges

This paper analyses the impacts of the innovation known as distributed ledger technology (DLT) on the monetary system and on financial activities. Private cryptocurrencies, such as Bitcoin, are permissionless means of payment, based on blockchain, a form of DLT. Evaluations suggested that these private cryptocurrencies could compete with the banks payment systems and even supplant state currency. The development of these technologies has the potential to modify profoundly monetary and financial practices, but there are no indications that they may threaten the centrality of state money and the banking system in the contemporary monetary order. Major international banks have developed cryptocurrencies for settlement systems and for interbank transactions, including the so-called stablecoins, issued by highly technological companies with on par conversion into state money. Some central banks are studying the launch of state cryptocurrencies that could coexist with their fiduciary state currency and even replace their paper currency. The use of this technology results in new challenges for regulation, including the fact that cryptocurrencies can be used for money laundering and by organized crime.

Digital currencies: a problem of trust

The rising cryptocurrencies have revived discussion about the prospects of monetary order and the central bank’s role in it. Functionality is in the core of the competition between the forms of money and the payment landscape could be fractionalized affecting further decline in the efficiency of monetary policy. Central bank digital currency (CBDC) is looked by monetary authorities as a way to respond to technological challenge and fulfill the gap of the market failure related to some imperfections of privately issued digital money. The success of each money form is dependent on the trust as a collective experience. The paper raises the question if the central banks are more credible than private digital money when probable change in the age structure matters for the spread of fintech. Based on empirical analysis, it is found that economic agents differentiate digital money of central banks from those of private issuers. Private cryptocurrencies are considered more reliable when inflationary experience is stronger, while central banks’ independence level and financial stability are not factors of higher trust to CBDC. Also, a country’s institutional features do not indicate that successful central banks can use the “the umbrella” of trust to their own cryptocurrencies while the factors of technological advance fail to show a clear significance. Social capital better contributes to the trust to private digital money. At the same time, the age structure is the strong factor due to which digital currencies are more reliable in younger societies. It is concluded that in the case then trust in cryptocurrencies is not grounded on institutional factors that historically contributed to stability of the monetary order, preconditions for the latter’s higher vulnerability are likely to rise. With the growing role of age structure as a factor of higher trust to digital money, the quality of social interactions will become a very important institutional precondition for the stability of monetary order.

Epilogue

In his later life, Robert Triffin received wide recognition for his work. Especially his intellectual analyses with a focus on contemporary economic policy issues and his tireless fight for a true international monetary order were praised. In 1989, King Baudoin made him a baron. Triffin chose as his motto a paraphrase of Belgium’s national motto, transposing “Unity makes strength” into “Unity makes peace.” It is remarkable that throughout his life Triffin remained faithful to the ideals of his youth, a rare quality. The young Triffin was indignant about the Versailles Treaty, while the old Triffin fulminated against the Vietnam War. For him, economics was a way to contribute to a better world. He was never interested in high-level prestigious positions or financial gain. He was strongly attached to his independence and the pursuit of a better and more peaceful world. He was indeed a true monk in economist’s clothing.

Confidence in digital money: Are central banks more trusted than age is matter?

The virtual nature of digital money is fueling the conflict between usability, functionality and trust in the digital form. Institutional trust drivers should move forward in understanding the nature of confidence in digital money. Do central banks digital money (CBDC – central bank digital currency) and private cryptocurrencies demonstrate the same or different trust patterns? The paper used the general regression method to discover the relationship between trust in different forms of digital money and selected variables that may generate this trust. Simple empirical tests were sufficient to find the fundamental importance of age as a confidence driver relevant to CBDC and cryptocurrencies. It is found that traditional factors associated with the inflation history and quality of monetary order (central banks independence and rule of law) do not play a role in the case of CBDC, but are important in the case of cryptocurrencies. Structural features (like FinTech development or social trust) that should support trust in digital money are not found to be important. Societies with larger fraction of younger generations demonstrate higher confidence in centralized and decentralized forms of digital money. This challenges the traditional approach to money and calls into question the future role of monetary stability institutions in the digital age. Digitalization is perceived as an improvement in welfare only when fiat money institutions become fragile. The efficiency and credibility of central banks are not a bonus to confidence in CBDC. This is a challenge for the institutional design of the future digital-based monetary order.

The Crisis of the Bretton Woods Monetary System and the Beginning of European Monetary Cooperation

The article aims to identify the impact of the crisis of the Bretton Woods monetary system on the beginning of European monetary cooperation. Russian scholars' publications on European monetary integration usually examine in detail the internal prerequisites for the emergence of the Werner Plan and only sketch the external environment. Drawing on available European and American sources, this research provides a more nuanced picture of the origins of European monetary cooperation in the context of a general collapse of the post-war international monetary order. The article begins with the characteristic of the main features of the Bretton Woods monetary system. In the late 1960s and early 1970s, the intrinsic contradictions of the Bretton Woods mechanism, such as the problem of liquidity, confidence in the key currencies, and the adjustment mechanism, generated numerous monetary crises. All efforts to reform the international monetary system stalled because of disagreements between countries with surplus and deficit payment balances. The research also focuses on the US monetary policy. As the US dollar was the main reserve currency, the stability of the entire monetary system depended on its position. Since the late 1960s, conflicts over monetary issues developed between the United States and Western European countries, culminating in the Nixon administration's unilateral decision to abolish the gold standard in August 1971. Monetary crises and the weakness of the dollar pushed the countries of the European Economic Community to develop their own currency grouping. The article analyses the Werner Plan of 1970 that proposed the creation of an Economic and Monetary Union (EMU) with a single European currency as the ultimate goal. Based on fixed exchange rates between European currencies, the EMU represented a regional replica of the Bretton Woods system. The single European currency was seen by Europeans as an alternative to the dollar and the unpredictable American policy. The author concludes that the end of transatlantic monetary cooperation gave an additional impetus to the development of European monetary integration. Although first European efforts to create the EMU had failed because of the different approaches of France and the Federal Republic of Germany as well as the economic crisis of the early 1970s, the Werner Plan marked a crucial phase in the history of European integration. The Werner Report became a blueprint for the European Monetary System (EMS) of the late 1970s. The success of the EMS paved the way for the creation of the European Monetary Union envisaged in the Maastricht Treaty of 1991 establishing the European Union and the adoption of a single European currency - the euro.

Silver Risk, Silver Exports, and Sovereign Debt in the Nineteenth Century

Whereas in the traditional view, bimetallism has been considered innately flawed, and the worldwide adoption of the gold standard, for that reason, inevitable, this chapter finds traces of evidence of the opposite course of events. Building on a revisionist strand in the literature, it describes that, for the period 1871‒90, contemporaries viewed silver as an essential ingredient of the international monetary order. They had, therefore, no immediate reason to question its credibility in the denomination of a country’s sovereign debt; instead, they considered the likeliness that a country would be able to continue to service its debts more or less independently of the denomination of these debts; and they were preoocupied by the question of whether currency risk should be taken by the issuing country or investors. Silver’s credibility eroded gradually, for instance through adding premia to bond issues; only in the 1890s was its credibility lost.

Money Knowledge or Money Myths? Results of a population survey on money and the monetary order

People use money in everyday life in ubiquitous ways. In addition, they know that money has quite different and multiple meanings in different social contexts, depending on the situation in which it is used. That said, what do people actually know about money, money creation, money backing and the institutional foundations of the monetary order? While contributions in the rapidly extending field of financial literacy have empirically studied people’s knowledge about mathematical and financial issues, people’s knowledge about the functioning of the money system and monetary institutions remained mostly unexplored. To improve our understanding of people’s knowledge of the money system and the most important money institutions, we questioned 2,000 individuals in Austria using a standardized population survey. In this paper, after a short critical review of the sociology of money and the literature on financial literacy, we present and critically discuss the results of the survey. We found that, independently of age, gender, education and income, people know very little about the money system or money institutions and mostly believe in money myths, such as the notion that money is still backed by gold. Finally, we discuss our empirical findings against the backdrop of the state of research on the sociology of money1.