by Jane Sneddon Little and Giovanni P. Olivei
September/October 1999

The recent spate of severe financial crises has provoked an interest in international monetary reform not seen since the breakdown of the fixed exchange rate system 30 years ago. Indeed, the crises have forced both academic economists and policymakers to question some of their most basic assumptions about the appropriate design of the international monetary system. This article was the introductory paper at the Federal Reserve Bank of Boston's conference on "Rethinking the International Monetary System," held in June 1999. The article reviews recent changes in the economic environment that have provoked the interest in reform. It goes on to explore how policy choices concerning four key aspects of the international monetary system—exchange rate regimes, treatment of capital flows, international lender of last resort facilities, and policy coordination—interact to support or undermine national efforts to achieve stable economic growth. The authors posit that current arrangements create unpalatable policy choices for many nations and that inadequate surveillance and policy coordination and the ambiguities surrounding international rescue programs contributed to recent crises. While widely advocated improvements in transparency and governance and the market forces they engender should encourage more mature financial systems and better macro policies, the authors suggest that the ongoing struggle to achieve stable growth points to the need for more fundamental reform.

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