Monetary Monopoly as Structural Cause for Systemic Financial Instability?

Abstract

The first telltale sign that there could be a systemic cause for financial and monetary instability is its repetitive nature. Indeed, even before the huge 2008 banking crash, the World Bank has identified more than 96 banking crises and 176 monetary crises since President Nixon introduced the floating exchange regime in the early 1970s (Caprio and Klingebiel 1996). Even before that period, financial booms and bust cycles were, in Kindleberger’s words, a remarkably ‘hardy perennial’ (Kindleberger 1978). He inventories no less than 48 massive crashes between the 1637 tulip mania in Holland and the 1929 crash on Wall Street.

The author wants to thank particularly Robert Ulanowicz, Sally Goerner and Nadia McLaren for their direct or indirect contributions to substantial parts of this chapter. We were all co-authors in an article published under the title ‘Is our monetary structure a systemic cause for financial instability? Evidence from Nature’ in the special issue about the financial crisis of the Journal of Future Studies February–March 2010. Some parts of this paper are repeated in this chapter, with permission from that Journal.