Transformation of the international monetary system: Should the period of flexible exchange rates be ended?

In November this year proposals are to be submitted to the G20 Summit in Cannes on the reform of the international monetary system. How should a future global exchange rate regime be designed? Jörg Asmussen, undersecretary at the Federal Ministry of Finance, stresses that from the viewpoint of the Finance Ministry a system of fixed exchange rates or of exchange rate target zones is to be rejected. Europe gained sufficient experience in the past from the exchange rate target zones of the European Exchange Rate Mechanism. Instead of this, reform measures such as a strengthening of the IMF surveillance mechanisms, an improved cooperation in the control of global capital flows as well as a road map for the integration of additional currencies, such as the Chinese renminbi, into the SDR currency basket could help to reduce the volatility in a more flexible worldwide exchange rate regime, and contribute to helping currencies reflect more strongly the fundamentals of national economies. This would also be a contribution to an orderly dismantling of global imbalances. In the opinion of Gunther Schnabl, University of Leipzig, the core of the reforms should not consist of the optimal exchange rate strategies of the periphery countries but should deal with the question of how the monetary-policy course of the US can be disciplined in the interest of the world as a whole. The answer could lie in a new orientation of the exchange rates of eastern Asia to the euro. An informal peg of all East Asian currencies to the euro would be promising because an external anchor would be politically acceptable for both Japan and China. And also for Europe, the "informal Far Eastern enlargement" of the euro-zone would be attractive. Among other things, the need to follow the monetary-policy course of the US Federal Reserve would be clearly reduced in the informally expanded euro area.