Year: 1991
Author: Bomhoff, Eduard J.
Credit and Capital Markets – Kredit und Kapital, Vol. 24 (1991), Iss. 3 : pp. 412–431
Abstract
Currency Convertibility: When and How?
In this paper I list the traditional advantages of currency convertibility with special emphasis on the point that liberalization of international trade will help to adjust domestic relative prices to their correct world values. This is especially important for the formerly socialist countries in Central and Eastern Europe, because of their history of subsidization of inputs, consumer products, and energy. The introduction of Western-style accounting concepts also requires useful relative prices: the paper argues that political pressures in favour of continuation of subsidies will be easier to overcome if a convertible currency forces domestic relative prices to adjust to international standards. After discussion of a number of possible scenarios for currency convertibility, including Professor Meltzer’s suggestion to follow the Hong Kong example of 100 % international reserve backing for the domestic money, I conclude the paper with a plea for full convertibility on current account, combined with the targeting of some domestic nominal magnitude. In the first stage, domestic wages might be the most appropriate target, to be replaced by nominal income or inflation when the income velocity of money has stabilized sufficiently to make monetary targeting feasible.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.24.3.412
Credit and Capital Markets – Kredit und Kapital, Vol. 24 (1991), Iss. 3 : pp. 412–431
Published online: 1991-03
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 20