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Globalization in an Age of CrisisMultilateral Economic Cooperation in the Twenty-First Century$
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Robert C. Feenstra and Alan M. Taylor

Print publication date: 2014

Print ISBN-13: 9780226030753

Published to Chicago Scholarship Online: September 2014

DOI: 10.7208/chicago/9780226030890.001.0001

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The International Monetary System: Living with Asymmetry

The International Monetary System: Living with Asymmetry

(p.301) 8 The International Monetary System: Living with Asymmetry
Globalization in an Age of Crisis

Maurice Obstfeld

University of Chicago Press

The international monetary system faces a growing asymmetry between advanced and emerging nations, echoing the pattern of the late Bretton Woods System. Emerging countries facing the threat of capital flow reversal, have resorted to self-insurance via foreign reserve hoarding. But given “fear of floating” they wish to limit exchange rate volatility through intervention, possibly for competitive export reasons, and/or to avoid boom-bust economic cycles. But this configuration of the world economy is most likely inefficient, resulting from coordination failures and institutional weaknesses. And it may self-destruct if a fiscal variant of the 1960s Triffin Paradox eventually undercuts the creditworthiness of the shrinking set of safe haven governments. These problems could be addressed by better multilateral cooperation, in the IMF or elsewhere, to provide better lender of last resort options, to enable more emergency liquidity, and to avoid currency wars.

Keywords:   International monetary system, Bretton Woods, Foreign reserves, Triffin paradox, Lender of last resort

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