Some Criticisms of the Monetary Approach to the Balance of Payments

Abayomi A. Alawode ()
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Abayomi A. Alawode: Financial Sector Division, Africa Region, The World Bank, Postal: 1818 H Street, NW, Washington, DC 20433 USA, http://www.worldbank.org/

Economia Internazionale / International Economics, 1997, vol. 50, issue 1, 13-25

Abstract: It is widely recognised that the monetary approach to the balance of payments (MABP) is the theoretical cornerstone for stabilisation programmes designed by the International Monetary Fund. The MABP contends that the balance of payments is essentially a monetary phenomenon and any disequilibrium in a country’s balance of payments reflects an imbalance between domestic money demand and supply. This paper scrutinises the theoretical framework of the MABP and identifies serious flaws which cast doubts on its usefulness as a foundation for effective balance of payments management in developing countries. It is consequently argued that efforts to correct payments deficits should look beyond monetary factors and consider tackling external debt problems and ensuring resource flows into deficit countries.

Date: 1997
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