The changing international monetary system

There is growing dissatisfaction with the current system of volatile exchange rates because exchange rate movements often do not reflect underlying economic conditions. The risk involved in international transactions remains high. Most countries prefer to peg their currencies to either a major currency or a currency basket. Uncoordinated economic policies and high mobility of funds across national borders are the main causes of exchange rate instability, and as a result there is a reasonable case for some form of management of foreign exchange rates. Major countries should consider the international effects of their economic policies and re-establish a sense of direction in the foreign exchange markets. JEL: E42, F31