International Currency Regimes, Capital Mobility, and Macroeconomic Policy

The structure of the international monetary system is once again a topic of great interest and controversy -- among economists, business managers, financiers, and government leaders. Many members of all these groups are acutely dissatisfied with the floating exchange rate regime that succeeded the Bretton Woods system two decades ago. Within the European Community, the Exchange Rate Mechanism has re-established a regime of "adjustable pets." After 1992 financial markets and institutions will cover the entire Community. The further step of issuing a common European currency is under serious consideration, and beyond that the more drastic step of replacing national currencies with a single European currency. These measures would still leave exchange rates among Japan, America, and the European Community free to float in currency markets.