The Monetary Background
The aggregate theory excluded from its compass autonomous international flows of convertible currencies whether they be held in interest-bearing short-term assets or in liquid funds. Questions of domestic monetary phenomena are subsumed in the macroeconomic aggregates that they generate and are incorporated into the question of international payments adjustment through these macroeconomic effects. The purpose of segregating international monetary elements from the so-called real elements of international payments was to permit separate analysis of the functioning of the real sector. The basic hypothesis is that, if the real sector can be kept in approximate balance through intelligent balance-of-payments policies, the real sector would not be a source of disturbances that would cause disruption in the monetary sector. These derivative monetary disturbances would be likely, in turn, to aggravate the malfunctioning in the real sector. It is, of course, equally important that the monetary system be sufficiently flexible that it does not generate within itself disturbances that it can transmit to the real sector. The purpose of this chapter is to consider what international monetary arrangements would be necessary for the sector to function smoothly in the absence of real disturbances.
KeywordsForeign Exchange Commercial Bank Foreign Currency Deposit Insurance Foreign Exchange Market
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