International Coordination of Monetary Policies — with Special Reference to the European Community

Abstract

There is a certain ambiguity in the term “international coordination of monetary policies”. Basically, three senses of the term may — and should — be distinguished. According to the first, coordination simply implies that national decisions are taken on the background of recent and full information on policy trends in other countries and their implications for the domestic economy. In this sense there is to-day a very high degree of coordination of policy not only inside the European Community (EC), but also in the wider groups of industrial countries.

“Central banks have little choice today but to act as components of a sort of global Federal Reserve System, if they wish to continue to have any effective control over macroeconomic developments in the world economy. The essential instruments of monetary sovereignty, of course, remain national. But in using them, monetary authorities must act increasingly in terms of the broader interests of the world community as a whole”. Towards Full Employment and Price Stability, Paul McCracken, et al., OECD, Paris 1977.

The views expressed in this paper are those of the author and do not necessarily reflect those of Danmarks Nationalbank and the Commission of the European Communities with which he is or has been associated in advisory roles. I am grateful to several participants in the SUERF conference, notably Horst Bockelmann, Geoffrey Maynard, Tommaso Padoa-Schioppa, Lional Price and Pieter Stek, for critical comments. I have no illusions, however, that the subsequent revisions have met the basic objection of experienced practitioners of EC monetary cooperation, viz. that my paper expresses somewhat naive expectations of policy coordination at a time where both the underlying economic situations and the monetary philosophies vary so widely between EC countries.