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Examines the European Monetary System experience and whether it can be applied to the International Monetary System. Addresses the relationship between the ERM currencies and the US dollar. There have been suggestions for a 'common dollar policy'. However, advance agreement on a common policy is difficult to imagine, in view of the differing interests of individual ERM countries, as well as the United States. (Abstract amended)

ABSTRACTThe article examines first the European Monetary System (EMS) experience and whether it can be applied to the International Monetary System (IMS). The EMS has particular features: it is not simply a regional Bretton Woods, and it also has a dimension going beyond the monetary field.Countries participating in the EMS exchange rate mechanism (ERM) have achieved a substantial reduction in exchange rate variability and a high degree of convergence toward cost and price stability. On a worldwide scale, things would be different: general political events have great influence on exchange rates, and large capital shifts are more likely. Whether the same degree of convergence of monetary policies can be achieved worldwide is doubtful. In the absence of a common political interest in integration, short‐term and domestic policy considerations will probably dominate policy decisions.In the second section the article addresses the relationship between the ERM currencies and the US dollar. There have been suggestions for a 'common dollar policy'. However, advance agreement on a common policy is difficult to imagine, in view of the differing interests of individual ERM countries, as well as the United States. The main problem for the relationship between ERM currencies, the dollar, the yen, and pound sterling lies in the need for more convergence of developments and compatibility of policies.The achievements of the EMS do not lead to the conclusion that a system of stabilized exchange rates would work satisfactorily on a worldwide scale. A high degree of policy co‐ordination, not only of monetary policy, but also of other economic policies, would be needed.

This chapter discusses various aspects of policy coordination in the European Monetary System (EMS). The purpose of the first paper in this chapter is to provide a survey of the process of European monetary integration, with focus on the EMS, its purposes, evolution, and the experience gathered since its establishment in early 1979. In its present stage of evolution, the EMS has developed a body of general institutional procedures to promote consistency among the policies and objectives of participating countries. The search for consistency inevitably gives rise to consequent constraints, such as those implicit in the specific rules on exchange rate and international reserve management that characterize the exchange rate mechanism (ERM). By drawing on an analysis of the role of monetary policy in balance of payments adjustment under different monetary systems and exchange rate arrangements, the second paper focuses on the crucial issues involved when an attempt is made to set rules for monetary policy coordination in a system of fixed but adjustable exchange rates such as the EMS

This study reviews developments in the European Monetary System from the beginning of 1983 to August 1986; it updates and complements an earlier study prepared by staff members of the International Monetary Fund and published Occasional Paper No. 19, which covered the time period from the inception of the European Monetary System to the end of 1982

Money and the Nation State: The Financial Revolution, Government and the World Monetary System. Foreword by Merton H. Miller. Edited by Dowd (Kevin) and Timberlake, Jr. (Richard H.). (New Brunswick, NJ and London: Transaction Publishers, 1998. Pp. viii+453. US $19.95 hardback. ISBN 1 56000 302 2, 1 56000 930 6.)