Reforming the World's Money. ESRI Memorandum Series No. 29 1965(?)

Geary, R.C. and Harrod, Roy (1965) Reforming the World's Money. ESRI Memorandum Series No. 29 1965(?). [Policy Paper]

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Abstract

The author advances his main thesis in his second sentence: the question of the amount and nature of the reserves (external currencies and gold) held by countries is "a major problem and indeed the most important problem confronting those responsible for economic affairs of the free world". One senses exaggeration here: is it because the author is an Englishman, for no other country seems to experience in degree of intensity these recurrent balance of payments' crises - the latest still with us - in the manner of the U.K.? Ireland cannot take a detached view of these U.K. difficulties since, because of our preponderant and increasing trade relations with our great neighbour, parity of exchange rates must continue unaltered. The quotation is puzzling for other reasons. It is quite obvious from the author's excellent chapter (the best in the book) on the International Monetary Fund that the author aspires, as every sensible man must, towards converting the International Monetary Fund into a world bank in which the cash reserves would be lodgments by countries of whatever currencies they care to hold, pending the establishment of an international currency unit. On such cash reserves could be built a large volume of credit to tide countries over temporary balance of payments difficulties. Exactly as in the case of a commercial bank vis-a-vis its customers, the International Monetary Fund could build a large volume of credit on its cash reserves. With a world bank, existing reserves would then be more than adequate and the present absurdity of each country sitting on its little store of reserves in fear and trembling, like the insects in Capek’s Insect play, would cease. Even as matters stand, however, the reviewer has doubts about the validity of the author's supporting argument, which is simply that international trade has increased since pre-war much more than reserves. Surely one would expect that~ with increasing intimacy of relationship between central banks, international trade can now be conducted on a lower volume of reserves? The author does not attempt to evolve a formula relating minimum level of reserves necessary for the conduct of international trade.

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