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Open Economies Review

, Volume 20, Issue 3, pp 339–358 | Cite as

Resurrecting Keynes to Stabilize the International Monetary System

  • Pietro Alessandrini
  • Michele Fratianni
Research Article

Abstract

We adapt the basic principles of the Keynes Plan and argue for the creation of a supranational bank money (SBM) that would coexist along side national currencies and for the establishment of a new international clearing union (NICU). These principles remain timely because the fundamental causes of the instability of the international monetary system are as valid today as they were in the early forties. The new supranational money would be created against domestic earning assets of the Fed and the ECB and its quantity would be demand-driven. Our proposal is not an agreement on exchange rates, which while possible is not essential to the functioning of the SBM. NICU would not hold open positions in assets denominated in national currency and consequently would not bear exchange rate risk. NICU would be more than an office recording credit and debit entries of the supranational bank money. The financial tsunami that hit the world economy in 2007–2008 provides a unique opportunity for a coordinated strategy.

Keywords

Keynes Plan External imbalances Exchange rates International monetary system Key currency Supranational bank money 

JEL Classification

E42 E52 F33 F36 

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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.Department of Economics and MoFiRUniversità Politecnica delle MarcheAnconaItaly
  2. 2.Kelley School of BusinessIndiana UniversityBloomingtonUSA

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