Jamaica Agreement International Monetary Fund

We are far from agreeing on how such a system works. On the one hand, we must guard steadmark the temptation to turn the system back into a system of de facto value, an attempt that, even if temporarily successful, will inevitably fail over time for reasons already widely explained. On the other hand, we cannot throw away an economic instrument as important as the exchange rate and leave the exchange rate developments almost exclusively to market forces, as Secretary Simon seems to have in mind. In particular, it does not seem acceptable for exchange rates to rise and fall in response to temporary divergences in monetary policy, as the Secretary is clearly prepared to do.21 This would not arbitrarily grant profit margins and impose sanctions on export and import industries. Both monetary policy and foreign exchange market intervention policy in the major industrialized countries must be designed and coordinated to avoid such unnecessary outcomes. Other questions and problems will undoubtedly arise. But at least the machine was created, which allows constructive experiences of forward-looking policy makers in a cooperative spirit. Since world war II, international monetary relations have been inspired by the Bretton Woods agreements of 1944. These agreements created the International Monetary Fund (IMF) to oversee a new code of conduct in international monetary relations and to help countries in difficulty continue to comply with the code by providing temporary financial assistance. They also created more or less thought-provoking international bank for reconstruction and development, better known as the World Bank, which has played a key role in financing development over the years. Given this important role of exchange rates and the fact that they express by nature the relationship between the currency of one country and that of another country and therefore must be of international interest, the Fund`s executive directors have adopted “variable exchange rate management guidelines” at an early stage. 18 Since floating is illegal under these sections, compliance with the guidelines can only be recommended.

At this stage, the Office has made a number of errors, or rather a number of weaknesses in its approach, some procedurally, at least one of which is fundamental. First of all, he was pushing too hard. President Morse had set himself the goal of achieving comprehensive reform of the international monetary system within two years, and he has never distanced himself from this timetable. Given the complexity of the problems and disadvantages under which the Committee had to work, this timetable was totally unrealistic. To be honest with President Morse, the Committee of Ministers asked him to speed up work after each new monetary dysfunction. Should exchange rates be allowed to go where they want, on the theory that market forces know best how the majority of the university community and, with small qualifications, the current US administration is favourable?17 I certainly do not believe it. Like the interest rate, the exchange rate is what economists call a policy instrument. In other words, these two economic variables are variables whose amount can easily be influenced by official action, not for their own good, but for the positive influence it has on other more important economic variables, such as inflation, unemployment, the international balance of payments, the balance of payments structure (i.e. a surplus of the balance of payments of industrialized countries to finance aid to developing countries).


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