The Choice of International Monetary Regimes in a Context of Repeated Games

Koichi Hamada

Open Economies Review, 1998, vol. 9, issue 1, 417-446

Abstract: A game theoretic and incentive approach is used to explain an international monetary regime. Decisions concerning a fixed exchange rate regime are difficult because they involve cooperation among participants, but decisions concerning defections from a fixed exchange rate regime are relatively easy because they are taken unilaterally. This may explain the difficulties for the completion of Economic and Monetary Union (EMU) in Europe well as the instability recently observed in the quasi-fixed exchange regimes of the Asian countries. EMU is now in full force. The perception of political benefits by national leaders has been the driving force of currency unification in Europe. The cost of a monetary union is the loss of monetary control by each participating nation. If countries cannot contain their desire to deviate from the common monetary expansion, then the currency could potentially be under speculative attack. After January 1, 1999, theoretically each EMU country can no longer deviate from the common norm; but the question remains how to implement this mode of conduct. Even the country in the center, Germany, may find a cost associated with the loss of its leadership role. Copyright Kluwer Academic Publishers 1998

Keywords: international monetary regime; system; game theory; collective action (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (6)

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DOI: 10.1023/A:1008396218591

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