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Keywords:

  • financing for development;
  • global reserve currency;
  • international monetary reform;
  • Keynes, liquidity preference;
  • uncertainty;
  • international reserves;
  • global imbalances

Abstract

In the context of the current financial crisis the article returns to the Keynes's plan for an international clearing house. In exploring the intellectual basis for Keynes's economics—namely uncertainty and liquidity preference—the article identifies the anti-developmental characteristics of US dollar-based international monetary system: (1) financial volatility and recurrent crises, (2) costly excessive international reserves, (3) the fundamental asymmetry of a system in which developing countries finance the US. Collectively these result in global deflationary tendencies which are caused less by a lack of liquidity than systemic inefficiencies. Keynes's plan for international monetary reform offers a solution to all of these problems. Copyright © 2010 John Wiley & Sons, Ltd.