Who is in control of the international monetary system?

Although the financial and economic crisis did not directly hit the international monetary system, it has lead to the rethinking of the overall architecture that underpins the world economy. Can the current system of floating currency blocs with dollar‐based trade and reserves withstand the strains of the global adjustment ahead? It is time to consider alternatives. This article argues that the existing system needs to evolve into a multicurrency one in which a number of international currencies, ideally representing the main trading areas, have the function of storing value and providing the unit of measure. A multicurrency system would respond more flexibly to the demand for liquidity and would provide a way to diversify the accumulation of reserve assets. It is also more appropriate for the increasingly multipolar world economy. The article discusses how in today's larger and more integrated world economy the dependence on the dollar as the basis of both trade flows and financial reserves has become excessive, creating some fundamental imbalances. However, while the rationale for change is clear, the current system is locked in a form of stable disequilibrium where the status quo carries the lowest risk for most players in the short‐term. Any abrupt move away from the dollar could trigger trade flow disruption and exchange value losses. Policy cooperation should keep the imbalances under control and manage the transition to a more stable system. The system will evolve, albeit gradually. Looking at the steps taken by some countries, notably China, there is the gathering impression that this decade is one of transition, rather than a ‘Bretton Woods moment’. Any reshaping will have to bring in the views of the ‘rising powers’, China in particular, and their concerns about the limitations of the existing system and the increasingly asymmetric burden of adjustment that it imposes.     

BOOK REVIEWS

Book Reviews in this Article: Caroline Walker Bynum, Holy Feast and Holy Fast: the religious significance of food to medieval women. Judith M. Bennett, Women in the Medieval English Countryside: Gender and Household in Brigstock Before the Plague. Susan Dwyer Amussen, An Ordered Society: Gender and Class in Early Modern England. Martin Ingram, Church Courts, Sex and Marriage in England, 1570-1640. Franca Pieroni Bortolotti, Sul movimento politico delle donne. Scritti inediti. Alison Prentice, Paula Bourne, Gail Cuthbert Brandt, Beth Light, Wendy Mitchinson and Naomi Black, Canadian Women: A History. Patricia Hollis, Ladies Elect, Women in English Local Government, 1865-1914. Ann Morley with Liz Stanley, The Life and Death of Emily Wilding Davison. A Biographical Detective Story, with Gertrude Colmore's The Life of Emily Davison’. Susan Kingsley Kent, Sex and Suffrage in Britain, 1860-1914.     

Reforming economic governance in Europe: exploring the road to effective coordination

The European Union is at a crossroad. In recent years it has been going through a major review of its institutional design without, however, clearly defining its role and scope. The credibility of its institutions is adversely affected by the widening gap between ambitious economic goals and the dismal performance of the economy in some member countries. Structural reforms have been progressing at a painfully slow pace. Popular support has been decreasing alarmingly. The need to confront poor economic performance and to embark on urgent market-structural reforms, as well as the problem of harmonizing national interests with those of the EU as a whole, have highlighted how the institutions and processes can be dovetailed. This article aims at contributing to the debate on economic governance and policy coordination in Europe. Looking at the genesis and the recent reform of the Stability and Growth Pact, it focuses on how the European Monetary Union macroeconomic policies are likely to be governed in the future and what the possibilities are for establishing effective economic and monetary governance. The Pact represents the most developed, albeit controversial, attempt to provide a framework for coordination of policies among sovereign states. Such coordination should help to achieve an appropriate fiscal–monetary mix, enhancing the credibility of monetary policy by insisting that member states governments do not spend more than they can finance through taxation. The Pact's recent revision is certainly the first step in the right direction, especially because it links macroeconomic stability with the goals of the Lisbon Agenda–job creation, market-structural reforms and social cohesion.     

Introduction

The aim of this special issue of International Affairs is to address the changing dynamics in the international economic system from an interdisciplinary standpoint, in order to unpack some of the emerging processes of globalization and to investigate the relationship between power and rule‐setting. The idea is to bridge the gap between the traditional realist accounts of the international system that place the nation‐state at the centre of the analysis, and the liberal, market‐driven approach that focuses on the problems of an increasingly integrated global economy and fragmented political authority. The framing question is how the global order (governance) has to change in order to accommodate the enlargement of the playing field and in particular the emergence of fast‐growing developing economies. How is this shift going to affect the distribution of power, both among nations and between state and non‐state actors? Is this shift going to drive a fundamental rethinking of the rules governing relations between countries—and regions—and institutions? The thread that links the articles in this special issue is the rather benign view of globalization, leaning towards ‘liberal ingenuity’ that sees governance as a way to accommodate conflicting interests through institutions in such a way as to minimize the potential for conflict.