John Maynard Keynes and Robert Triffin and the idea of an international central bank
Caine, Wesley K.
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The present study is concerned with ths idea of an international central bank as it has developed in the thinking of John Maynard Keynes and Professor Robert Triffin. It is argued that there has been an evolutionary development in the international monetary system that began with the gold standard and is now progressing toward a supernational bank with characteristics like the banks Keynes and Triffin have proposed. The concrete idea of such an institution was developed first by Keynes: in 1943 he proposed his International Clearing Union that would have had and administered its own monetary unit, bancor, and would have been truly international in character and scope. This plan was rejected. But its essential ideas have been incorporated into the current proposals of Professor Triffin, and Triffin's plan is very much alive in current discussion. In the first chapter, there is a general exposition of Keynes' fundamental theory of money. The categories "Money-of-Account" and "money-the-agent" are explained, and it is shown how Keynes reasons that the vary existence of these categories is rooted in the entity of the State. The notion that monetary matters begin with a philosophy of the State is basic for Keynes. In his opinion, laisses fairs is so longer relevant for the modern world. Keynes argues that while some functions are private in nature, there are other activities that are properly public, and these latter activities are the responsibility of the State. Managing the monetary system so as to achieve public goals and avert social evils is one of these functions. This philosophical approach to monetary theory provides a critical background for an analysis of both the gold standard and the system that followed, Monetary nationalism, or the "key currency system". This analysis is the essence of the second chapter. Keynes' fundamental criticism of geld was that it made individual countries dependent upon international equilibrium; domestic prices sad employment were out of domestic control. This criticism became the rationale for Monetary Nationalism. a philosophy that gave national governments control over their respective currencies. In its turn. Monetary nationalism created new problems, however. For international trade, it meant that most currencies would not remain acceptable, and a dependence of a few very strong currencies developed. These became known as "key currencies", and they became as liquid as gold. Robert Triffin charges that this system contains the seeds of its own destruction. With s growing international economy, he argues, the world will need ever increasing amounts of liquidity. Since the volume of gold is relatively fixed by nature, it would earns that the source for the expended supply would have to coma from greater use of key currencies. The question is how far can a key-currency country extend itself before it literally faces bankruptcy? Triffin argues that the financial crises of today can be explained in terms of this question. The last chapter discusses an alternative to Monetary nationalism. Specifically, it discusses the proposals for an international central bank that have been put forth by Keynes and Triffin. This chapter argues that such a bank would solve the problems of today, and it shows that such a solution would be indeed evolutionary. It also argues that a synoptic analysis of Keynes' thought shows such a bank to be completely consistent with all his other suggestions for the world economy. That good evidence for these arguments exist is the conclusion derived from the overall study.