Casper de Vries, Professor Emeritus of Monetary Economics at Erasmus School of Economics, spoke about the new world financial order in an article by the FD. Whereas a global exchange rate system was established at Bretton Woods in 1944, the world financial order is nevertheless in need of change after all these years.
The introduction of the euro has made the eurozone a major exception compared to the free exchange rates in the rest of the world for 25 years. Thus, the eurozone now basically has a system of fixed exchange rates, without the possibility of devaluation. According to de Vries, this leaves euro countries to only one action to improve their competitiveness. This is namely to ensure that their wages rise less than elsewhere in the currency union. This has happened in a number of countries in recent years, which could be politically painful. Previously, there was still the gold standard, where the currency was pegged to gold. This is now out of the question, making money into fiat money, based on trust, according to de Vries.
As stated by de Vries, a return of an international exchange rate system is unlikely. This is because there is no good mechanism to enforce compliance, something we already can see within the eurozone. In addition, there are more and more big players, so making a deal could still prove very difficult.
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You can download the full article from FD, 27 June 2024, above.