Globalizing Capital by economist Barry Eichengreen is now in its third edition, updated to include the global financial crisis, the Greek bailout, the Euro crisis and the rise of China as a global monetary power. The verses contrast the easy lives of the rich with the poor, hungry, cold and loveless lives of the moneyless. In Germany catastrophically high inflation in the early s had rendered money almost valueless. Money had completely ceased to do its work of making the world go round and millions were impoverished as a result.
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Globalizing Capital by economist Barry Eichengreen is now in its third edition, updated to include the global financial crisis, the Greek bailout, the Euro crisis and the rise of China as a global monetary power. The verses contrast the easy lives of the rich with the poor, hungry, cold and loveless lives of the moneyless. In Germany catastrophically high inflation in the early s had rendered money almost valueless.
Money had completely ceased to do its work of making the world go round and millions were impoverished as a result. Even in the victorious countries, Britain and France, there was significant inflation after the war, which had a very dislocating effect. To counter this state of affairs, the world sought to resurrect the gold standard in the hope of returning to the pre-war world of sound money and free and frictionless international trade.
But, as Barry Eichengreen explains in Globalizing Capital: A History of the International Monetary System, the restoration of the gold standard did not restore the stability of the pre-war world because, in important respects, the world had changed. Some countries Britain joined at too high a rate, subjecting their economies to deflationary pressures and high unemployment.
Others France joined at too low a rate, leaving them with structural current account surpluses. Slowly, over the course of the late s and s, the gold standard was abandoned as, country-by-country, its participants dropped out and devalued. In fact the system was subject to various shortcomings and was hit by the odd crisis.
What made the gold standard work in its golden era—roughly —was the common interest of its largest participants in making it work and their ability to be flexible around the rules of the game in order to keep the game going. All participants were focused on one objective, maintaining convertibility to gold, and everyone trusted everyone else to maintain that exclusive policy focus.
After the First World War, partly as a result of increased domestic political pressure in all countries to tackle unemployment and improve social provision, it was simply impossible to maintain exclusive focus on this one objective. Eichengreen explains the evolution of the gold standard and how it worked comparatively smoothly until it was abandoned under the pressures of war.
He then looks at how the resurrection of the gold standard in the s failed. Then he moves on to the establishment of the post-World War II system, Bretton Woods, which lasted until the s, when it foundered on the reluctance of the United States to maintain its gold peg in the face of financing requirements for government spending at home and fighting the Vietnam war.
The Bretton Woods system, the essence of which was to maintain exchange rate stability by limiting currency convertibility, like the gold standard, functioned in spite of itself. It was not the careful calibration of current and capital account imbalances and the role of the newly-created IMF that kept Bretton Woods functioning, but rather the common interests of the West in the face of the Soviet threat. Strong post-war levels of growth helped too.
The other evolution in the international system that Eichengreen discusses at length in Globalizing Capital is the history of European monetary union, which was born in the wake of the failure of the Bretton Woods system to manage exchange rates.
He charts the various mechanisms the EU or its previous incarnations, the ECC and the EC built to manage exchange rates in the s, s and s, the extent to which these worked and how and why they foundered. He goes on to tell the story of how full monetary union was adopted and engineered in the s under plans fleshed out by the then President of the European Commission, Jacques Delors. In the wake of the Eurozone crisis at its most intense from to , when Greece, Cyprus, Ireland, Spain and Portugal all had to seek bailouts from the IMF and their fellow EU states, the shortcomings of the Eurozone as an optimal currency area were cruelly exposed.
But Eichengreen stresses the political solidarity and common interests that allowed the Eurozone to pull through. As Eichengreen points out, other plans for monetary union, in Latin America and south-east Asia have failed to get any kind of traction, because the requisite commonality of political interest is simply not there.
Eichengreen ends by talking about the future. Increasingly, we live in a world of floating exchange rates, with the dollar acting as the global sheet anchor of the international monetary system. The growth in the volume of global trade, and the size of capital flows, are making it harder and harder to defend currency pegs.
The biggest challenge for the international monetary system as it now exists is to accommodate the rise of China. But as renminbi convertibility increases, as it must, it will play an ever greater role in the international monetary system. The million-renminbi questions is how the rest of the world will seek to accommodate it when it is fully convertible.
As the stories of the gold standard, Bretton Woods and the Eurozone suggest, there will have to be mutual political interest underpinning arrangements if the dollar and the renminbi are to exist in some kind of mutually beneficial symbiosis.
Eichengreen does not suggest what such arrangements might look like and it is surely too early to tell.
Refresh and try again. Globalizing Capital: A History of the International Monetary System by Barry Eichengreen What was critical for the successful maintenance of fixed exchange eichengreem during that period was the fact that governmentswere relatively insulated from democratic politics and thus from pressure to trade off exchange rate stability for other goals, such as the reduction of unemployment. For one thing, I am told that if we melted down all the gold in the world, it would only fill up 2 olympic-size swimming pools! Its writting is clear, precise and consider the historical aspects of the Monetary Economy pretty well.