The Other Side of Convertibility

Abstract

A system for ensuring the convertibility of a currency into specified commodities is also, ipso facto, a system for stabilizing the prices of those commodities in terms of the currency in question. This connection is widely ignored in discussions of these two subjects, but it links the two specialised fields of monetary economics and commodity price stabilization tightly together. Unfortunately, despite much work on the topic spanning many decades, almost all such work is made within a single paradigm – that of establishing an international institution to stabilize commodity prices. However, for a number of reasons, no international agreement can achieve more than a very partial solution to this problem: most importantly it cannot directly stabilize more than a single currency, thereby losing the most fundamental benefit of a true solution for all but one of the participating countries. A different approach is therefore needed.