Exchange Rate Volatility and Misalignment: Evaluating some Proposals for Reform

Abstract

The need for reform of the international monetary system has been a recurring theme in the writings of Robert Triffin.² In this paper, we follow Professor Triffin’s lead and analyse several proposals for reducing the volatility and/or misalignment of key-currency exchange rates. The proposals examined are a system of target zones, the imposition of controls or taxes on international capital flows, and a strengthening of international co-ordination over economic policies. Our purpose is not to endorse one proposal and to dismiss others. For one thing, some of the proposals have common elements. For another, some features of each of the proposals are already present in the existing exchange rate system. Instead, we see evaluation of these proposals as a useful vehicle for identifying issues that merit attention in any serious examination of how the functioning of the international monetary system might be improved.