A suggestion for solving the international liquidity problem

Abstract

The article takes up the debate on the problem of international liquidity. While a significant consensus has emerged on several major issues in recent years, no single plan has been adopted. The main problem blocking adoption of a particular plan is how to determine, and who will control, decisions as to the rate at which total reserves should change over time. Here the authors outline a plan designed to provide a workable answer, including the proposal of a new international monetary unit, referred to as the Medium for International Transactions (MIT). In order to bring out most clearly the basic properties and goals of the proposed system, how the system could be set up and would function is described, assuming that the MIT is the sole legal tender for international transactions between central banks. It is then shown how the system could be modified to permit the continued use of gold, along with the MIT. Finally, some of the issues that will have to be resolved if the participating parties are not prepared to disregard the past are dealt with.

JEL: E42, F31, F33, F34