Exchange Control For Ever

Pascal Salin Many of the texts which have been used for the present book were presented as papers at a conference organized in Brussels by Michiel van Notten for the 1 Institutum Europaeum in December 1980on the subject of European Monetary Union and Currency Competition. However, this book is more than the mere proceedings of a conference. It aims at presenting the reader with an homogenous text, not a patchwork of papers, in spite of the large number of contributors. Though it would be absurd to pretend that these contributors -some of whom are prominent thinkers - agree on everything, their dissenting opinions do not go beyond the usual qualifications one may find in a book of which the final direction is quite clear, but where the requirement of intellectual strictness leads to the analysis of both the pros and the cons of a problem. It may also seem to some that this book deals with two different subjects, currency competition and monetary union, which have been joined together more or less randomly. We believe, however, that this impression will be dis pelled as soon as they commence reading. Both sections of the book deal with one and the same topic: the optimal organization of a monetary system. Present efforts to achieve European monetary unification all suffer from the same preju dices with respect to the organization of the monetary systems within each country and within the world as a whole.

The Classical economist of the 19th century, with his faith in the ultimate efficiency and equity of free, impersonal markets, would certainly be amazed and dismayed by the developments in foreign exchange markets during the last thirty-five years. With the exception of the United States no important trading nation in the world of today maintains a freely convertible currency. On the contrary, each nation maintains a more or less comprehensive system of controls over the receipts and payments which can be effected in international markets. Recent efforts to reduce the extent and rigor of exchange regu lation, notably in Western Europe, have yielded modest results; it seems unlikely, however, that foreign exchange transactions will ever again be completely free of controL Foreign exchange control, with a greater or lesser degree of bilateralism, is a product born largely of necessity. Two world wars and a major world-wide depression so distorted the pattern of world trade and investment that free markets were simply unable to achieve their "normal" automatic adjustment. Ex change control, on the other hand, has demonstrated its efficiency as a means of maintaining a semblance of order in disorganized international markets. Unfortunately, however, exchange con trol also has great possibilities for further distortion of the pat tern of world trade, for discrimination, and for economic ex ploitation - for economic effects generally considered undesirable.