John Maynard Keynes

 

Sloop John B

So hoist up the John B's sail
See how the mainsail sets
Call for the captain ashore, let me go home
Let me go home, I wanna go home
Let me go home

Oops, wrong ship. I thought this was the Sloop John M.

John Maynard Keynes proposed an international monetary system which would use the Bancor. The continued reliance on gold as an international medium of exchange would not allow for international trade because most of the world’s gold at the close of WWII was in the United States. The United States prevailed with a position that the US Dollar, which was a domestic fiat currency since it could no longer be converted into gold, should be convertible into gold internationally. This position was ratified at the Bretton Woods Conference of 1944 and endured until the Nixon Shock of 1971. As long as other nations who acquired US Dollars through international trading did not try to convert those US Dollars into gold, the system was a de facto international fiat currency. But because of the fear that other countries could convert those international dollars into gold, Nixon made the international convertibility null and void. Because the US money supply was only intended to accommodate US domestic economic transactions, e.g. M2, but not the international economic transactions, the result was the high inflation of the 1970s and 1980s and today's continuing persistent inflation.

A man can not serve two masters. It is also true that a currency can not be both a domestic currency and an international currency. The US has suffered continued inflation because of this situation. Another major international trading currency is the Euro, which is also the domestic currency within each country of the European Union. The Euro replaced the Drachma in Greece and the Lira in Italy, among many others. However when the domestic economic crises  in Greece and Italy required a deflation of their own domestic currency in order to address their  economic crises, they no longer had a domestic currency, It looks like John Maynard Keyes was right all along, ... again. The world needed an international fiat medium of exchange such as the Bancor. Not having one has resulted in many domestic economic crises that could otherwise have been avoided.