Tut Group launches its operations in Egyptian market for exporting Egyptian products    Sisi follows up on Egypt's food security, retail sector development    Gold posts modest gains on July 15th    China's urban jobless rate eases in June '25    Egypt's Health Minister reviews drug authority cooperation with WHO    Egypt's PM orders 60,000 new homes for Alexandria's unsafe buildings    Egypt urges EU support for Gaza ceasefire, reconstruction at Brussels talks    Escalation in Gaza as Israeli airstrikes intensify, ceasefire talks stagnate    Agriculture Minister discusses boosting agricultural cooperation with Romania, Moldova    Pakistan names Qatari royal as brand ambassador after 'Killer Mountain' climb    Health Ministry denies claims of meningitis-related deaths among siblings    Egypt, Mexico explore joint action on environment, sustainability    Egypt, Mexico discuss environmental cooperation, combating desertification    Needle-spiking attacks in France prompt government warning, public fear    Foreign, housing ministers discuss Egypt's role in African development push    Korea Culture Week in Egypt to blend K-Pop with traditional arts    Egypt, France FMs review Gaza ceasefire efforts, reconstruction    CIB finances Giza Pyramids Sound and Light Show redevelopment with EGP 963m loan    Greco-Roman tombs with hieroglyphic inscriptions discovered in Aswan    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Egypt condemns deadly terrorist attack in Niger        Sisi launches new support initiative for families of war, terrorism victims    Egypt's GAH, Spain's Konecta discuss digital health partnership    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Egypt's Irrigation Minister urges scientific cooperation to tackle water scarcity    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    Egypt's Democratic Generation Party Evaluates 84 Candidates Ahead of Parliamentary Vote    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Cabinet approves establishment of national medical tourism council to boost healthcare sector    Egypt's PM follows up on Julius Nyerere dam project in Tanzania    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Striking euro gold (and silver)
Published in Daily News Egypt on 09 - 01 - 2012

PRINCETON: The alternatives for Europe's currency, the euro, seem increasingly limited to a desperate muddling through or a chaotic collapse. But there is a bolder and more productive approach that relies on past experience with multiple currencies.
The threat posed by Europe's current policy impasse can hardly be overestimated. In the early 1930's, monetary-policy incoherence paralyzed US policy, with the Federal Reserve Bank of New York locked in insurmountable conflict with the Chicago Fed over monetary easing (at that time through open-market securities purchases). Today's chronic policy disputes between Germany and France are producing a level of uncertainty that is potentially even more destructive.
Every few months, European governments launch a new and ever more ingenious initiative to resolve the eurozone's debt crisis. For a day (and sometimes only for a few hours), financial markets rally euphorically. But soon doubt sweeps back in. There is no sense of a realistic endgame. And there is no longer-term vision of how the fiscal integration needed for the effective operation of a monetary union could be achieved in a practical timeframe.
Europeans should look to the past, when previous crises produced innovative solutions. The extended crisis of the European Monetary System (EMS) between September 1992 and July 1993 looked as if it would derail European integration. What was initially seen as a problem in one country (Italy) toppled other currency regimes like dominos: Britain, Spain, and Portugal — and, by July 1993, even France was vulnerable. Then, as now, Europe's future was at stake.
The solution adopted in frantic late-night negotiations in Brussels initially looked counterproductive. The massive widening of the EMS bands to 15 percent on either side of a central parity initially made a single currency appear more remote. But it also took away the one-way-bet character of speculative attacks on vulnerable currencies, and thus removed the fundamental driver of instability.
The modern equivalent of the band widening of 1993 would be to maintain the euro for all members of the eurozone, but also allow some of them (in principle, all of them) to issue — if necessary — national currencies. The countries that did would probably find that their new currencies immediately traded at a heavy discount. California recently adopted a similar approach, issuing IOUs when faced with the impossibility of access to funding.
The success of stabilization efforts could then be assessed according to the price of the new currency. If the objectives were met — fiscal stabilization and renewed growth — the discount would disappear. In the same way, after 1993, the French franc initially diverged from its old level, but, in a good policy setting, it then returned within the exchange-rate band.
This approach has an important advantage: it would not require the redenomination of bank assets or liabilities. As a result, it would not be subject to the multiple legal challenges that a more radical alternative would run into.
Of course, there would also be the possibility that no convergence would occur, and that the two parallel currencies would coexist for a much longer period. This is not a novel thought. One of the possibilities raised in the discussions on monetary union in the early 1990's was that a common currency might not mean a single currency. That possibility is not just a theoretical construct in fringe debates two decades ago; it is a real historical alternative.
In fact, there is a rather surprising parallel for stable coexistence of two currencies over a long period of time. Before the victory of the gold standard in the 1870's, Europe had operated with a bimetallic standard for centuries, using silver as well as gold. Each metal had its different coinage. This regime was so successful in part because the coins were used for different purposes. High-value gold coins were used as a reference for large-value transactions and international business. Low-value silver coins were used for small day-to-day transactions, including payment of modest wages and rents. Silver was what Shakespeare termed the “pale and common drudge ‘tween man and man.”
A depreciation of silver relative to gold in this system would bring down real wages and improve competitiveness. Early modern Italian textile workers would find their pay in silver reduced, while their products still commanded a gold price on the international market for luxuries. This is one of the reasons why theorists such as Milton Friedman considered a bimetallic standard inherently more stable than a monometallic (gold-based) regime.
Nowadays, the equivalent of the adjustment mechanism in the early modern world of bimetallism would be a fall in, say, Greek wage costs paid in the national currency, as long as it was traded at a discount. These would be the silver currencies.
Meanwhile, the euro would be the equivalent of the gold standard. It would be kept stable by the institutions that already exist today, the European Central Bank and those national central banks that have no new alternative. In this sense, the core countries would be the equivalent of eighteenth- and early nineteenth-century Britain, which had only a gold-standard regime.
Maintaining a choice of currencies in a national as well as an international setting seems odd and counterintuitive. But it can — and has — been done, and it can be remarkably successful at satisfying peak demand for stability.
Harold James is Professor of History and International Affairs at Princeton University and Professor of History at the European University Institute, Florence. He is the author of The Creation and Destruction of Value: The Globalization Cycle. This commentary is published by Daily News Egypt in collaboration with Project Syndicate, www.project-syndicate.org.


Clic here to read the story from its source.