Agenda for a new monetary reform

The thrust of this article is that once more the time has come for a broad debate on domestic and international monetary order and on the role and the rules governing the functioning of financial markets in the modern market economy. We have to define an agenda and seek a consensus for a new monetary reform that will take into account both the positive and negative lessons learned from more than twenty years of experience with liberalization, deregulation and privatization in the financial sector, with flexible exchange rates and international monetary instability. In today's world economy there is an especially dangerous contrast between, on the one hand virtually total globalization of financial markets, and the fixation of monetary policy on narrow national objectives on the other hand. The article lists eight major items that ought to be considered in this debate: (1) the adoption of common rules necessary in a global market economy, (2) the need to return to a true international monetary order, (3) redefining and strengthening the role of central banks, (4) examining the dangers of a primarily short-term finance driven globalization, (5) extending the scope of the concept of price instability beyond the domestic price index, (6) dealing with the problem of artificial risk creation in financial markets and establish a more equitable distribution of the costs of risks, (7) reconsider the current distribution between earning on financial assets and other income and counteract the deflationary bias in the current system, (8) redefine monetary and financial order that is compatible with modern information technologies, rather than lagging behind the information revolution. The article does not offer set solutions for all these issues. Its conclusion is, however, that without such a debate and a consensus on a balanced new approach, there is a real threat of a backlash, the threat of losing the advantages of liberalization and globalization and of a return to increased monetary and economic nationalism and to excessive government intervention and control.