Working Paper

How false beliefs about exchange rate systems threaten global growth and the existence of the Eurozone

Abstract: The current belief system that says ?all will be well? if domestic price stability can be maintained is fundamentally flawed. If this can be achieved only through monetary, credit and debt expansion, the end result will be an increased risk of systemic crisis. Moreover, false beliefs about how exchange rate systems function, at both the global level and within the Eurozone, imply international ?spillover? effects that increase both the likelihood and the seriousness of such crises. Gross international capital flows pose as many (perhaps more) dangers than do net flows (ie current account imbalances). And false beliefs about exchange rate regimes not only compromise crisis prevention, but they also hinder crisis management and resolution. At the global level, we still lack the instruments to do either effectively should current problems worsen. In the Eurozone, the crisis which began in 2010 has not been well managed and remains fundamentally unresolved.

JEL Classification: B52; E5; F42; F45;

https://doi.org/10.24149/gwp250

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2015-09-01

Number: 250