Three Fundamental Problems of the International Monetary System Essay Example

According to John M. Keynes, the International monetary system presents three fundamental problems, the first being its bias against countries with balance of payments deficits. This bias results from the lack of incentive for external surplus countries to adjust, leaving the burden of adjustment mostly on deficit countries. The adjustment process tends to occur abruptly and with a delay, causing a recessionary effect globally if deficit financing suddenly dries out. Asymmetric adjustment creates this effect when deficit countries cannot secure sufficient financing to balance their external accounts and the adjustments are not balanced by expansionary policies in surplus countries.

The system's anti-Keynesian bias can be referred to as a problem. Another issue, known as the Triffin dilemma and from Robert Triffin's research, is due to the inherent instabilities of an international reserve system that utilizes a national currency (specifi