It is actually surprising that so much focus is given on one of Keynes many ideas- whether fiscal stimulus works or not. Very little is known of Keynes ideas on economic institutions/organisations. He had some grand ideas wrt international economic institutions and as a result we have World Bank, IMF, GATT (now WTO).
I came across this excellent paper by Nadia Piffaretti of World Bank who looks at another Keynes international institution idea which got lost – International Clearing Union.
As the global economy undergoes profound changes, it is becoming apparent that the so-called “Revived Bretton Woods System” has increased the overall vulnerability of the global financial architecture. Therefore, it is worth revisiting the origins of the Bretton Woods conference, and pointing out the relevance for today’s framework of Keynes original 1942 plan for an International Clearing Union. This note explores the main characteristics of Keynes’ original plan, by revisiting his original writings between 1940 and 1944, and outlining its relevance to the current debate on the international financial architecture. The note suggests that reforms of the international financial architecture should include anchoring the international monetary system on sounder institutional ground.
Hmmm. What was this ICU??
Keynes’ proposal for the establishment of a new World Order went beyond the need to suggest a framework for managing post-war relations. It originated from Keynes’ realization that the use of money in international trade had, as Keynes put it, only “worked” for about “two periods of about fifty years each” in the past 500 years (Keynes 1940, p. 21). Hence, contrary to common wisdom, Keynes’ work did not stem only from the desire to overcome the limitations of the inter-war periods of unrestrained exchange rate flexibility. In the final breakup during the War of the “international currency laissezfaire,” Keynes saw not only a problem, but – in his own words – an address the fundamental question of the institutional weaknesses of the first era of globalization, which had been brought to an end by the two World Wars and the Depression. Keynes saw the absence of an organized system of international payments as a key institutional weakness amid a disorderly international system.
His response was first and foremost aimed at institution-building. By suggesting the introduction of an “opportunity” to international clearing union (among national central banks), he proposed to apply to international payments the same institutional arrangement governing payments within nations, centered around a system of banking clearing.
The author then looks at more eco history and why it was not accepted. US Treasury had alternate plans and was more acceptable to the Bretton Woods participating public. She also tells you in detail what the plan was and how would it work.
She then suggests the need to look at the plan now as we go through a deep global crisis next to the Great Depression. Just like then, we are talking about many proposals and need to look at Keynes ICU plan as well.
Excellent stuff. Drawing lessons from Eco History to suggest some reform/proposals ahead.