New Blackfriars, Volume 103, Issue 1107, Page 622-639, September 2022.

Recent years have seen a problematic upward trend in disequilibrium in the international balance of payments. What accounts for this trend? Three hypotheses for the rise in disequilibrium are tested in this paper: greater fixedness of the world exchange rate regime causes greater disequilibrium; greater flexibility of the exchange rate regime causes greater disequilibrium; and a decline of United States economic hegemony causes greater disequilibrium. It is argued here that the problem was created by state choices, a lack of coordination (...) among states in the international system, and the absence of an international exchange rate regime. The evidence presented in this paper supports the idea that a stable international exchange rate regime is critical to secure a healthy world economy. (shrink)