Choice of a monetary system 67 Table 1.Several possible international monetary regimes (choose one from each column) Role of exchange rates Degree of market in balance-of-payments convertibility for adjustment Reserve asset capital movements I.Fixed exchange rate A.Gold 1.Full II.Adjustable parities B. SDRs* 2.Dual market III.Gliding parities C.US dollars 3.Controlled and other IV.Managed float national currencies V.Free float *Refers to special drawing rights,first created in 1970 by the International Monetary Fund. regardless of the practices that obtain in the rest of the world.Many small countries may prefer II.C.1.with respect to a"mother country"(e.g.,the Sterling Area)even though large countries are on a different regime.But to function,the mixed international regime must still meet certain consistency requirements:the different components must be compatible with one another. Just specifying a regime in these gross dimensions does not indicate how well it will work.That depends,among other things,on how countries behave within the rules and conventions of a particular regime,not merely on the choice of regime. This fact greatly complicates the choice of a regime,since how countries will behave once it is adopted cannot be forecast with certainty.However,some regimes do have technical weaknesses as compared with others.An adjustable peg regime with uncontrolled capital movements will evoke large movements of funds when- ever a change in exchange rates is in prospect,for example,and a gold standard requires balance-of-payments adjustment to take place through variations in domes- tic employment.To point to these difficulties shifts the discussion from possible regimes to the desirability of alternative regimes. Criteria for choosing a monetary regime Choice between alternative regimes requires a specification of objectives,with relative weights to indicate which ones must govern when a conflict arises between This content downloaded from 211.80.95.69 on Mon,24 Jun 201304:23:40 AM All use subject to JSTOR Terms and ConditionsChoice of a monetary system 67 Table 1. Several possible international monetary regimes (choose one from each column) Role of exchange rates Degree of market in balance-of-payments convertibility for adjustment Reserve asset capital movements I. Fixed exchange rate A. Gold 1. Full II. Adjustable parities B. SDRs* 2. Dual market III. Gliding parities C. US dollars 3. Controlled and other IV. Managed float national currencies V. Free float *Refers to special drawing rights, first created in 1970 by the International Monetary Fund. regardless of the practices that obtain in the rest of the world. Many small countries may prefer II.C.1. with respect to a "mother country" (e.g., the Sterling Area) even though large countries are on a different regime. But to function, the mixed international regime must still meet certain consistency requirements: the different components must be compatible with one another. Just specifying a regime in these gross dimensions does not indicate how well it will work. That depends, among other things, on how countries behave within the rules and conventions of a particular regime, not merely on the choice of regime. This fact greatly complicates the choice of a regime, since how countries will behave once it is adopted cannot be forecast with certainty. However, some regimes do have technical weaknesses as compared with others. An adjustable peg regime with uncontrolled capital movements will evoke large movements of funds when￾ever a change in exchange rates is in prospect, for example, and a gold standard requires balance-of-payments adjustment to take place through variations in domes￾tic employment. To point to these difficulties shifts the discussion from possible regimes to the desirability of alternative regimes. Criteria for choosing a monetary regime Choice between alternative regimes requires a specification of objectives, with relative weights to indicate which ones must govern when a conflict arises between This content downloaded from 211.80.95.69 on Mon, 24 Jun 2013 04:23:40 AM All use subject to JSTOR Terms and Conditions