INTRODUCING COMPETITION TO THE GLOBAL CURRENCY MARKETS

The global capital markets are inefficient and imperfect, ie unstable, subject to overshoot, and with excessive transaction costs, unaccount ed externalities, and monopolistic characteristics. A social innovatio n is proposed: a new foreign exchange facility to introduce competitio n, lower transaction and external costs, make the capital markets fair and more accessible, and produce revenues for further harmonizing cur rency regulations, reducing criminal behaviour, and other legitimate p urposes. National governments, finance ministers, and central banks wi th ad hoc policies to defend their currencies and domestic policy opti ons are offered new tools to regain some of the sovereignty they lost in the 1980s when international capital markets were deregulated. Nati onal policy makers can no longer tell their voters that the loss of do mestic safety nets and the exposure of their most vulnerable citizens is an inevitable price of maintaining 'global competitiveness'. Copyri ght (C) 1996 Elsevier Science Ltd