If Mr. Mundell had his way, there wouldn’t be anything for politicians to say about exchange rates. They would be fixed – as they were under the Bretton Woods arrangement after World War II until 1971, when President Nixon took the U.S. off the postwar gold standard and effectively launched the era of floating exchange rates.
Even better, in his mind – and now we’re really talking long term – would be to have a global currency. This could take the form of a new money or a dominant existing one to which all others are fixed – probably the dollar. “As Paul Volcker says,” Mr. Mundell relates, “the global economy needs a global currency.”
The idea of a global currency may sound crazy now, but it will probably happen one day. Since WWII, the USD has more or less been the global currency. The weakening USD is hugely disruptive to global trade and may force countries to action. My guess is that we’ll have the Amero by 2020, if not sooner.