I'm showing this diagram also because one of the things that
Mundell ends the article with,
he wrote this article in 1999 and its published in 2000 when he got the Nobel Prize.
And it's sort of optimistic at the end if you've read it.
He says, "Oh, look we've had this bad 20th century
experience," and which I'm going to talk about today.
But look, now we have these sort of stable units.
We have the Euro, we have the Dollar,
we have the Yen and we're on our way to
maybe having an international monetary system and some stability.
We still have volatility but maybe it's going to be better.
And he's sort of hopeful at the end of the at the end of the article.
And so we can see what happened since since 2000,
that in fact there's still quite a bit of volatility.
So there's the Yen here at the beginning of this period,
and here's the Yen at the end of this period.
This is very large fluctuation in value against the Dollar.
And the same with the Euro. Here's the Euro here
and the Euro at the end, there's fluctuation.
I should warn you, this diagram we are
quoting these two exchange rates in two different terms.
The Euro as we did last time.
This is just what comes out of this Fred site that I was showing you before.
Maybe I'll show you on this side here,
that the Euro is quoted here as US Dollars to one Euro.
So if it takes more US Dollars to one Euro,
that's appreciation of Euro.
So if this goes up,
that appreciation the Euro.
If this goes down, that's appreciation of the yen.
So these two, if there were no movement between the Yen and the Euro,
these two lines should move exactly opposite to each other.
Because of this quoting convention.
And you can see sometimes they do sort of move opposite.
There's that one there and there's that one there,
but they're not equal and opposite.
That's just a little bit of a move and that's a big move.
So there's a lot of volatility not only
between these major currencies and the Dollar
but also between each other is the point too.
So, we do not have
a- where there's a lot of volatility and there's still no global currency,
which is what he says at the end of this article in 2000.
So 12 years later,
we haven't moved on very far.
And in fact as I'll come to at the end,
we have a Euro crisis now,
and some people wonder whether the Euro will even survive.
In 1999 is when the Euro became the Euro,
so that was a huge moment of hope for the future,
and now it's in some crisis.
And you will see also that as a consequence of
the financial crisis is that there's been
some retreat from financial globalization toward national capitalism.
So things have retreated somewhat from the optimism of 2000.
Doesn't mean that we won't get through it,
maybe we will. We don't know.
We'll see what the future holds.
So let me just talk about this article.
This is a fascinating article,
A reconsideration of the 20th century.
And I've had this article on the reading list for many years,
but I hadn't read it in a while.
And so when I was reading it in preparation for today,
I realized there are some things about this article that I never
quite fully took on board and noticed before.
So I want to first draw your attention to that.
And I'm going to translate this article into the language of the course,
but in some ways, it's closer to the course than I had realized.
It's clear that Mundell
has a- he's thinking about the gold standard as being the good old days.
The international gold standards of good old days.
And why was it good old days?
That's the point.
It was the good old days because the payment system
provided a kind of
discipline for individual countries.
That the need to make your international payments in gold was a good, thing.
That it disciplined central banks and disciplined finance ministries as well.
And that was a good thing for individual countries, the disciplining business.
It was not only good for individual countries,
but it created an integrated system of the whole world.
Integration and stability because
everyone is adjusting their own behavior to the same discipline.
They're all facing the same discipline and as a consequence,
the system as a whole has a certain unity to it.
Now this didn't mean that there weren't problems,
and there was actually some tendency to long deflation some time
or because of the value of gold would change over time.
But in retrospect, this is rather a positive feature of the system.
This all broke down in World War 1,
and we had this whole 20th century experience,
which was quite different.
And the story that he wants to tell in
this article is that instead of submitting to the discipline,
countries decided and central banks and finance ministers said,
"This discipline is too harsh.
And I don't want to submit to it.
And so, I would like to get out from under in some way or the other."
And, so central banks are avoiding discipline,
are trying to avoid discipline.