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  Academic Module: Regional Monetary Integration

  Comment: Globalization makes national currencies obsolete

  Author:	Benn Steil, Senior Fellow and Director of International Economics

  November 8, 2007
  National Post

  Capital flows have become globalization’s Achilles heel. Over the past 25 years, devastating currency crises have hit countries across Latin America and Asia, as well as countries just beyond the borders of Western Europe — most notably Russia and Turkey. The economics profession has failed to offer anything resembling a coherent and compelling response to currency crises.

  International Monetary Fund (IMF) analysts have, over the past two decades, endorsed a wide variety of national exchange-rate and monetary-policy regimes that have subsequently collapsed in failure. They have fingered numerous culprits, from loose fiscal policy and poor bank regulation to bad industrial policy and official corruption. The financial-crisis literature has yielded policy recommendations so exquisitely hedged and widely contradicted as to be practically useless. Anti-globalization economists have turned the problem on its head by absolving governments (except the one in Washington) and instead blaming crises on markets and their institutional supporters, such as the IMF — “dictatorships of international finance,” in the words of the Nobel laureate Joseph Stiglitz.

  Is this right? Are markets failing, and will restoring lost sovereignty to governments put an end to financial instability? This is a dangerous misdiagnosis. In fact, capital flows became destabilizing only after countries began asserting “sovereignty” over money — detaching it from gold or anything else considered real wealth. Moreover, even if the march of globalization is not inevitable, the world economy and the international financial system have evolved in such a way that there is no longer a viable model for economic development outside of them.

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  In Termites in the Trading System, Jagdish Bhagwati reveals how the rapid spread of preferential trade agreements endangers the world trading system.

  

  America Between the Wars explores how the decisions and debates of the years between the fall of the Berlin Wall and the collapse of the Twin Towers shaped the events, arguments, and politics of the world we live in today.

  

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  This report argues that the United States must lead with domestic action on climate change and proposes a U.S. negotiating strategy for a global UN climate agreement that includes commitments from all major economies, while also promoting a less formal Partnership for Climate Cooperation that would focus the world's largest emitters on implementing aggressive emissions reductions.

  U.S.-Latin America Relations: A New Direction for a New Reality

  This Task Force report examines changes in Latin America and in U.S. influence there, while taking account of the region's enduring importance to the United States. The Task Force offers an agenda for U.S. policy toward Latin America and identifies four critical areas that should provide the basis of a new U.S. approach.

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