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Two cases for sand in the wheels of international finance

Author: Eichengreen, B. ; Tobin, J ; Wyplosz, CharlesINSEAD Area: Economics and Political Science Series: Working Paper ; 94/54/EPS Publisher: Fontainebleau : INSEAD, 1994.Language: EnglishDescription: 20 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: Historically, fixed exchange rate system have had a finite lifetime. In particular they are incompatible with full capital mobility. This would leave just two sustainable options for exchange rate systems: free floating or currency unions. We examine two possibilities for maintaining the immediate option of fixed but adjustable rates, for those groups of countries which cannot form currency unions and yet seek to limit exchange transactions. The institutional requirements of such a tax are heavy: it must be global and closely monitor by an international organization. the second option, a tax on lending to non-residents. This measure too is shown to be very demanding. We examine whether it can be used temporarily to help bridge the transition from EMS to EMU which has already been highly disruptive
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Historically, fixed exchange rate system have had a finite lifetime. In particular they are incompatible with full capital mobility. This would leave just two sustainable options for exchange rate systems: free floating or currency unions. We examine two possibilities for maintaining the immediate option of fixed but adjustable rates, for those groups of countries which cannot form currency unions and yet seek to limit exchange transactions. The institutional requirements of such a tax are heavy: it must be global and closely monitor by an international organization. the second option, a tax on lending to non-residents. This measure too is shown to be very demanding. We examine whether it can be used temporarily to help bridge the transition from EMS to EMU which has already been highly disruptive

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