Journal Articles

Resurrecting Keynes to Stabilize the International Monetary System

2009, Open Economies Review

Michele U. Fratianni, Pietro Alessandrini

Abstract

We adapt the basic principles of the Keynes Plan and argue for the creation of a supranational bank money (SBM) that would coexist along side national currencies and for the establishment of a new international clearing union (NICU). These principles remain timely because the fundamental causes of the instability of the international monetary system are as valid today as they were in the early forties. The new  supranational money would be created against domestic earning assets of the Fed and the ECB and its quantity would be demand-driven. Our proposal is not an agreement on exchange rates, which while  possible is not essential to the functioning of the SBM. NICU would not hold open positions in assets denominated in national currency and consequently would not bear exchange rate risk. NICU would be more than an office  recording credit and debit entries of the supranational bank money. The financial tsunami that hit the world economy in 2007-2008 provides a unique opportunity for a coordinated strategy.

Citation

Pietro Alessandrini and Michele U. Fratianni, "Resurrecting Keynes to Stabilize the International Monetary System", Open Economies Review, 2009, 20(3): 339-358.

Keywords

Keynes Plan, external imbalances, exchange rates, international monetary system, key currency, supranational bank money.