Is There a Need for Reform?

The very notion of "reform of the international monetary system" is a very modern one in two respects. "Reform" is a conscious act, an act of volition and coordinated will, as distinguished from a series of piecemeal changes that occur as individual actors--banks, business firms, governments--respond to new circumstances, leading over time to change, but not to conscious reform. Second, the notion of an "international monetary system" reflects a distinctive perspective, an overview of how all of the pieces work together and a focus on the ultimate results from the behavior of individual agents, taken collectively, to be distinguished from how individual firms, banks or governments will or should behave in the international monetary domain, given its major features. These two notions come naturally to us. But it was not always the case. It was perhaps the distinctive characteristic of the original Bretton Woods conference, and of the negotiations leading up to them, that this system-wide perspective, to be reformed, was adopted in full for the first time. The architects were addressing the structure of the international monetary system as a whole; and they were, as a collaborative act of volition, attempting to reform the entire system from the ground up. They had been shaken by the performance of the "nonsystem" of the 1930s and the short-lived gold exchange standard of the 1920s, and they wanted to build a stable, durable structure that would accommodate both the new commitment to activist macroeconomic policy at the national level, and a high degree of freedom for international trade at the international level. To be sure, antecedents can be found here as in virtually all domains. There were several discussions during the nineteenth century of bimetalism, and how best to preserve it, but they were somewhat desultory. The 1922 Genoa conference was convened to figure out how to restore the prewar gold standard in view of the perceived global shortage of gold at postwar price levels. That conference clearly took a system-wide perspective, but the changes suggested were limited and piecemeal, designed to preserve as much as possible of the old structure. It was English-style evolutionary reform, rather than American-style constitutional reform, starting with the fundamentals rather than with what was inherited from the past. In what follows I will comingle both types of reform. American-style or constitutional reform has the advantage of forcing thought with respect to what objectives are to be served. What do we really want out of the international monetary system? Evolutionary reform has the advantage of avoiding radical changes and building on what we are already accustomed to, yet