John Williamson and the Evolution of the International Monetary System

Edwin Truman

No WP12-13, Working Paper Series from Peterson Institute for International Economics

Abstract: Throughout his brilliant career, John Williamson has frequently focused his considerable analytical skills and powers of persuasion on reform of the international monetary system. This paper examines two principal areas of his concern: (1) exchange rates and the adjustment process, and (2) international liquidity, seigniorage, and the stability of the system. With respect to exchange rates, I find that there has been a moderate reduction in variability, but over the past 40 years external imbalances have, if anything, worsened. The adjustment process has malfunctioned. With respect to international liquidity, reserves have expanded rapidly, but their expansion has been demand-determined, has not involved a remonetization of gold or an increase in inflation. I find that concerns about the size and maldistribution of seigniorage are misplaced. Moreover, we are seeing a steady evolution toward a multicurrency international monetary and financial system. However, reserve diversification does not appear to have adversely affected exchange rate volatility to date. I conclude that the principal benefits of the Bretton Woods international monetary system remain and the principal weaknesses remain. But the system is evolving. It could be improved with respect to the adjustment process and the role of the International Monetary Fund as the international lender of last resort.

Keywords: international monetary system; exchange rates; external imbalances; adjustment process; international liquidity; foreign exchange reserves; seigniorage; reserve diversifi cation; special drawing rights; International Monetary Fund; John Williamson (search for similar items in EconPapers)
JEL-codes: F30 F31 F32 F33 (search for similar items in EconPapers)
Date: 2012-08
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Citations: View citations in EconPapers (4)

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