The Case for a New ECU: Towards another Monetary System

221 Pages·1989·11.81 MB·English

by  Jacques Riboud (auth.)

THE CASE FOR A NEW ECU
Also by Jacques Riboud
EXPANSION ECONOMIQUE
DEVELOPPEMENT URBAIN: RECHERCHE D'UN PRINCIPE
LlBERALISME ET FINANCEMENT
LA VRAIE NATURE DE LA MONNAIE
UNE MONNAIE POUR L'EUROPE: L'EUROSTABLE
LA MECANIQUE DES MONNAIES D' AUJOURD'HUI ET DE DEMAIN
LA MONNAIE DANS SES ARTIFICES
CONTROVERSE SUR LA BANQUE ET LA MONNAIE
THE MECHANICS OF MONEY
The Case for a
New ECU
Towards another Monetary System
Jacques Riboud
Translated by Stephen Harrison
Palgrave Macmillan
ISBN 978-1-349-09732-6 ISBN 978-1-349-09730-2 (eBook)
DOI 10.1007/978-1-349-09730-2
English translation © Stephen Harrison, 1989
Softcover reprint ofthe hardcover 1st edition 1989
All rights reserved. F or information, write:
Seholarly and Referenee Division,
St. Martin's Press, Ine., 175 Fifth Avenue, NewYork, N.Y. 10010
First published in the United States of Ameriea in 1989
ISBN 978-0-312-02124-5
Library ofCongress Cataloging-in-Publieation Data
Riboud, Jaeques.
[Monnaie dans ses artifiees. English]
The ease for a new ECU: towards another monetary system / by
Jacques Riboud; translated by Stephen Harrison.
p. em.
Translation of: La monnaie dans ses artifiees.
Bibliography: p.
Includes index.
ISBN 978-0-312-02124-5: $35.00 (est.)
l. Money. 2. Monetary poliey. 3. International finanee.
I. Title.
HG22l.R49513 1989 88-18641
332.4----de 19 CIP
Contents
Foreword vii
The Parable of the Master Tailor and his Pair of Scissors
2 The Keys to Monetary Analysis 7
3 Future Monetary Possibilities 13
4 How Money Is Created: Some Fables and Comedies 19
5 Waiting in the Wings: The Bankers' Clearing Mechanism 34
6 The Other Side of the Coin 41
7 The President's 3 Per Cent 50
8 MI, M2, M3 and the Rest 55
9 A Hidden Virtue of the Gold Standard 86
10 Mingling with the Crowd at the IMF: The 'American
Connection' 92
11 From a Full Value ECU to a Constant ECU 99
12 How to Sell a Currency that is Better Than All th~'Qthers 105
13 An Ocean of Red Ink 118
14 Economic Asphyxiation 125
15 Monetary Regulation: Regrets and Hopes 136
16 Investment and Employment: A Doubt, a Reconsidera-
tion and a Proposal 151
17 Back to the Thirties 162
v
VI Contents
18 Towards a New Bretton Woods? 171
19 Chaos in the Foreign Exchanges 176
20 'Great Nations, Not Many Ideas': The Antagonistic
Factors 184
Notes and References 191
Glossary 194
Index 202
Foreword
This book grew out of a question and an observation. The question is
this: how can we explain present monetary disorders and our inability to
overcome them when the very future of modern society depends on our
overcoming such disorders? The observation is my own failure to find
the answers that I was looking for in the pages ofthe 'standard authors',
to whom we are referred back by a scholastic system that is perhaps no
longer relevant. As for research in the monetary field, a phenomenon
which is so typical of our times, although it makes use of that most exact
of the sciences, mathematics, it neglects certain vital factors (for
example, the bankers' clearing system), and is sometimes mi staken (for
example, regarding the supposed power of monetary creation which is
attributed to the Eurodollar banks).
I am well aware that such remarks will strike some people as
presumptuous, or perhaps merely naive, and I am equally sure that they
will not endear me to those who lay claim to exclusive prerogatives in the
field of study upon which I am entering. I can only remind such people
that there was once a time when monetary economics was the subject of
passionate debate among persons of the most varied backgrounds and
with the most varied professional experience. Around the middle of the
last century, the Banking School, and its riyal, the Currency School,
were the subjects of disputes in wh ich politicians and bankers took part
on an equal footing with a co rn-broker and a merchant navy officer. It is
a pity that this is no longer the ca se today, at a time when the
organisation of our monetary system is more important than ever and
suffers from greater deficiencies than ever.
We often hear people say 'I don't und erstand anything about money'.
It is true that monetary mechanisms today are complex, and some time
and effort is needed to get to the heart of monetary problems, which is
the essential precondition - not always satisfied - for being able to talk
about them. For this reason, it is regrettable that modern monetary
science does not attach more importance to the question ofunderstand
ing and improving the monetary mechanisms, and it is equally
regrettable that it confines itself to exercises in abstraction, which
doubtless have their uses but which exist at remoter and remoter levels
and which are less and less accessible.
In my previous book, The Mechanics 0/ Money,1 I attempted to
construct, for the benefit of those who, like me, are not at their ease in
vii
viii Foreword
this world of abstractions which is so much in fashion nowadays, a
consistent system which would help them to understand and analyse the
phenomenon ofmoney. To this end, I proposed three keys, transaction,
clearing and what I then called 'reduction', which seemed to me to be
convenient tools for singling out one or two basic ideas from among the
multifarious, disorganised phenomena of the contemporary monetary
scene.
My hope was that these keys would help me to interpret the
phenomenon ofmoney. I believe that my French and English-speaking
readers have responded to this attempt.
In the following pages I am addressing myself to the same readers.
And it is no accident that I have used the modern world and
contemporary events as aspringboard for tackling the major monetary
problems. Reference to contemporary events has the merit of concen
trating analysis on concrete facts and preventing it from losing contact
with reality. But it is not without its own risks. Modernity is a fleeting
notion. Comments based on the news of the moment will soon be
obsolescent, and it often happens that economic forecasts based on
present-day events are contradicted by subsequent events.
It is true that the present day is not looked at from this point ofview,
but merely as an approach to the question of discovering the fundamen
tal monetary mechanisms. In addition, examples taken from the modern
world help to alleviate the inherent aridity of the subject. I have
complemented this by referring to metaphorical examples (for instance,
'The parable of the master tailor and his pair of scissors') without
ignoring one or two revealing anecdotes (such as 'With Mrs Thatcher in
a china factory').
But the role of these metaphorical examples and these anecdotes
should not be misunderstood: they are only there in order to facilitate
the reader's own perception of a subject which everyone agrees is a
diflicult one.
This subject may be defined as an attempt at constructing a theory of
money which frequently and deliberately ignores traditional teaching in
both its analyses and its proposals.
As a preliminary, there is the parable ofthe master tailor and his pair
of scissors, which has just been mentioned. This is deliberately placed at
the beginning of the book. It immediately reveals one of the dominant
themes of the book: the sterility, and even the irrationality, of a
monetary system which knows of -,-and looks for - no other means for
safeguarding the value of money than penalising employment and
stifling the economy.
Foreword IX
Turning, next, to the main body of the text, two chapters follow, the
first of which expounds some rather special methods of monetary
analysis, while the second proposes some techniques for organising a
monetary system. These introductory matters lead on to several
chapters in which the components of the system mentioned above are
put together. This goes from the creation of money (Chapter 4) right up
to the monetarist indicators, MI, M2, M3 and the rest (Chapter 8).
The unitiated reader, however, must be warned straight away that the
first eight chapters of this book may strike hirn as somewhat difficult to
get to grips with. In spite ofthe constant references to concrete examples,
some abstract argument is unavoidable and many readers may find it
difficult. All the same, these same readers will admit that the ideas set out
in the body of this book would be very vulnerable to refutation if they
were not based on solid foundations. The first eight chapters aim to lay
these foundations.
I feel I ought to advise those readers who by now are feeling somewhat
discouraged but whose attention I still wish to retain, to skip the first
eight chapters and start immediately at Chapter 9 ('A Hidden Virtue of
the Gold Standard'). In this way they will be on familiar ground from the
start, without having had to wait to get there, and from there till the end
of the book they will find discussion of the main monetary questions of
our times: the relation between money and its artifices, and inflation,
employment, investment, public sector debt, etc.
Readers who are already familiar with these topics, on the other hand,
particularly students of economics, are recommended to study the first
eight chapters. By encountering in these pages money in its various
artifices, they may perhaps find answers to the questions which I have no
doubt they are continually asking themselves concerning the phen
omenon ofmoney. This text will also help them to look at the questions
which are tackled in the following twelve chapters in a different light.
After the gold standard (Chapter 9), we come to the dollar and its
problems ('The American connection', Chapter 10). In Chapter 11 we
discuss the project for the creation of an extranational composite
monetary unit with constant purchasing power (the constant ECU,
Chapters 11 and 12). In this connection, some mention is made of the
problem of international indebtedness (Chapter 13).
The regulation of the economy by interest-rate manipulation is dealt
with in Chapter 14 ('Economic asphyxiation'), and it is completed by an
exposition of various ways of replacing the present restrictive monetar
ism with monetarism of a more expansive kind (Chapters 15 and 16).
Before concluding, there is a review of the past, present and future of