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The Economics of Common Currencies (Collected Works of Harry Johnson) by Alexander K. Swoboda, Harry G. Johnson

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Chapter 4

THE DUAL CURRENCY SYSTEM REVISITED

RONALD I. MCKINNON

Stanford University

In 1963, after looking at data on the integration of commodity trade and applying the theory of optimal currency areas, a world with two major currencies – Western European and American – seemed best suited for reconciling internal and international policy needs.1 Have the succeeding seven years thrown up new data or new theories which significantly strengthen or weaken the arguments in favour of such a dual currency system?

The major argument pursued then was that currency and capital-market integration should follow the flow of commodity trade. Those countries which are major trading partners should maintain a single fixed exchange rate system because continuous ...

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