International Monetary Arrangements for the 21st Century.

• Author: Dowd, Kevin

The basic thesis of this book is that current and anticipated future developments in the world economy will increasingly undermine ability of governments to prevent exchange rate movements from exceeding prespecified limits. These developments include the increasing integration of the world economy, increased capital mobility, and the "increasingly politicized environment in which monetary policy is made" which "will erode the credibility of governments' commitment to the pursuit of robust monetary rules" [pp. 56]. If this analysis is correct, it effectively rules out the sustainability of pegged but adjustable exchange rate regimes, crawling peg regimes, target rate regimes and other currently popular options. Indeed, if we regard even ostensibly "fixed" rate regimes as in reality pegged but adjustable, Eichengreen's argument also rules out the option of conventional "fixed" rate regimes as well. Only two options then remain: genuinely floating rates, with no commitments to exchange rate targets of any kind, and full monetary union.

The book is part of a series of 22 books being released as part of the Brookings project on integrating national economies. The book itself is organized into 9 chapters. Leaving aside the introduction (chapter one), chapter two looks at policy options, chapter three at prerequisites for international monetary stability, chapter four at historical evidence, and chapter five, which is essentially the core chapter, at current and likely developments in the world economy, and also at options for monetary reform. Chapter six looks at optimum currency issues, chapter seven at prospects in Europe, paying particularly attention to the recent history of the ERM, and chapter eight at prospects and options for the rest of the world. There is then a brief concluding chapter, followed by comments by Alberto Giovannini and Toyoo Gyohten.

The book is to be recommended to anyone interested in international monetary arrangements. It has a thoughtful, clear and reasonable perspective of an important area that, frankly, confuses many other writers. Indeed, its basic perspective is probably its strongest point - and a very useful contribution to the literature. The book is also nicely written, and the main point - the critique of exchange rate targets - is in my view largely persuasive. (As an aside, I also like the Brookings format of having a couple of independent readers give their views at the end: it helps to give the reader...