Global Monetarism and the Monetary Approach to the Balance of Payments

Abstract

A DECADE OR SO ago, when the twin concerns about the balance of payments of the United States and the functioning of the international monetary system began to impinge on the consciousness of a public theretofore indifferent to such esoterica, the opinions of those who were already paying attention fell into a neat dichotomy.Government officials and "men of affairs," on the one hand, insisted that the continued health of international trade, investment, and the world economy required the maintenance of the Bretton Woods system of pegged exchange rates, under which changes in rates were made infrequently and as a last resort.Academic experts, on the other hand, were nearly unanimous in pressing the advantages of greater flexibility of exchange rates, with many urging that governments abstain altogether from intervention and allow exchange rates to be determined by the interplay of supply and demand in the market-This paper was