Money in International Exchange: The Convertible Currency System

How do nations trade when no purely international money exists? This book describes how the use of national currencies, only some of which have the important international property of being convertible, allows most of world trade to be effectively monetized rather than bartered. Professor McKinnon's analysis represents the first attempt to focus on the microeconomic and monetary aspects of international exchange, and addresses unresolved problems in securing mutual monetary adjustment among the world's great trading economies.

Focusing on monetization of international trade per se, the text analyzes common financial practices of merchants and manufacturers, commercial banks, and central banks. Interesting new data indicate how particular national monies are selected as currencies of invoice for exports, how the conventions of extending trade credit from buyer to seller have evolved from the gold standard era, and what banking institutions are necessary to allow traders to hedge themselves at reasonable cost against currency fluctuations. The author also critically reviews public policies that either support or obstruct the world's money machine, and demonstrates why the underlying monetary order and observed conventions of exchange cannot be taken for granted.