For, today, America is not what it was when Keynes
suggested, in 1944 at Bretton Woods, the creation of a global
reserve currency, `bancour', so as to insure it from the
vicissitudes of any single economy to casually wave it off. America was
then a current account surplus country, while it is today a
current account deficit country, that too, weighed down by far
bigger fiscal deficits. Secondly, dollar was then pegged to gold,
which means, unlike now, it could not print currency freely. It is
precisely for this reason that the US—when its economy came
under great strain during the Vietnam War—was to give
up dollar's gold standard in 1971.
That aside, in the light of today's significant world macroeconomic imbalances, a need
has certainly arisen for rich countries as well as
the countries with huge forex reserves to take a
serious re-look at the international monetary system, if the recovery from the current
economic meltdown has to be sustained. Countries
like the US that are running current account deficits are saddled with far bigger fiscal
deficits than those countries with current account
surpluses, and this is all set to grow further, as
the US implements its fiscal stimulus to revive
its economy by freely printing currency, simply because the
current account surplus countries such as China are bound to import
a greater chunk of that stimulus introduced by the US.
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