October 2000 Fraser Forum: Exchange Rates & Monetary Unions and their Relevance to Canada

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Nobel Laureate Robert Mundell

[The following is an edited excerpt from the Fifteenth Dr. Harold Walter Siebens Lecture¹, given by Professor Robert Mundell to The Fraser Institute’s Annual General Meeting Round Table Luncheon audience on April 3, 2000 in Vancouver. Fraser Institute Executive Director Dr. Michael Walker chaired the event.]

Professor Robert Mundell: It’s a great pleasure for me to be back in familiar territory and to be here at The Fraser Institute. I’ve followed The Fraser Institute and its development. It has been making strong, important contributions, and forcefully getting its own message out, and has established itself as one of the premiere institutions of its kind in the world.

I want to start this lecture by saying a few words about my Nobel lecture on December 8, 1999. The Nobel ceremony was December 10, but everyone gives their hour-long lecture a day or two earlier. The economics prize was awarded last, so the economists speak last, so this was the last prize of the century—and of the millennium. I thought that I should have a title that reflected the magnificence of the occasion, so called it "A Reconsideration of the Twentieth Century"—an ambitious title.

A review of the twentieth century

The basic idea was to look at the twentieth century from the standpoint of a monetary economist. The gist of it was that the century started off with a highly efficient international monetary system that produced for the world a high degree of integration, globalization, efficient capital movements, price stability, and a very high level of employment; it was a very efficient system. But the gold standard broke down in World War I and it never got put back together again. It wasn’t put together again for reasons that have never been made completely clear from a scientific point of view.

The French economist central banker in the 1920s, Charles Rist, once said that democracy killed the gold standard. He meant by that that democracy was creating pressures on government to redistribute income, and that this was creating burdens on government spending that would make it impossible to maintain fiscal balance and price stability. I think that’s a very insightful comment on what emerged in the twentieth century, but I don’t think that’s what broke down and made impossible a truly international gold standard in the post-War period. I think what caused it was the very fundamental change in the size and configuration of the world’s countries.

In 1906 an American at Cambridge University gave a lecture and wrote a book called "The Greatest Fact in Modern History." What was the theme of it? What was the greatest fact in modern history in 1906? It was the rise of the United States. By 1906, the US and its 85 million people had already become the country with the biggest economy in the world. In 1913 when the US created the federal reserve system, it was already three times as large as the other countries. The next biggest power was the British economy, closely followed by the German economy.

The demise of the gold standard

So, the old gold standard, a decentralized mechanism, stopped being what it used to be. Keynes was the first person to point out that, to an increasing extent, gold and the stability of gold depended upon the policies of a very few central banks. For all practical purposes, you could say that the US federal reserve system (together with the much less important Bank of England) had taken over from, and become more important than the gold standard.

In the post-World War I period, that fact was even more clearly established. When the world went back to a gold standard in the 1920s, it created a false equilibrium. The price level in the 1920s was about 40 percent higher than that before the war. When countries went back to the gold standard, it created an excess demand for gold, and a deflationary pressure that led to the fall of prices that we know created the Great Depression—and who knows what else? Other bad things that happened at that time were predicated by the Great Depression—including World War II. So the international monetary system played a big role in world events, but when the economists looked at these events, they didn’t have the luxury of hindsight.

With hindsight it’s easy to see what happened, but then it wasn’t so easy. After the fact, economists understood that the international gold standard—the international system—had, in a sense, brought on the Great Depression through an under-valued gold price. So they blamed the gold standard and didn’t want to go back to it. In fact, they didn’t want to go back to any kind of international monetary system.

Owing to the devastation of the Great Depression, when Keynes’ General Theory of Employment, Interest, and Money came out in 1936, economists and policy advisors leaped at it and swallowed it hook, line, and sinker. They adopted the policies and ideas of macro economic management in the Keynesian framework, but forgot that Keynes’ General Theory was written for a closed economy. Nevertheless, by 1936 the US had devalued the dollar and it was the only country then buying and selling gold freely. Other countries started to attach their currencies to that of the US. So we got back to an international monetary system, but the prevailing economic philosophy was based on closed economy economics.

The United States—certainly the intellectual powerhouse after the war, with the refugees coming into the United States from Europe—certainly dominated economic studies, dominated all the textbooks. In the 1940s and 1950s, textbooks were full of international macro economic policy, but it was closed economy macro economics. The United States didn’t concern itself with the international system even though they were the central part of it. Obviously that system broke down.

Two illustrations

I’ll give one or two illustrations. In 1948, the United States had 70 percent of the world’s gold reserves and it could afford to lose gold. It was quite happy to lose some gold in the 1950s until doing so started to create problems. With inflation following World War II, gold had again become undervalued and by the end of the 1950s had become scarce. The dollar was in glut, and nobody wanted to correct the price of gold for political and other complicated reasons, and so the system of macro economic policies based on closed economy principles self-destructed. You could have predicted that from the beginning.

In another example, I played a role in one little episode when I came to the International Monetary Fund (IMF) during the Kennedy Administration in 1961. Kennedy had just come to power and I arrived in September 1961 when a big debate was going on. Kennedy had promised to get the economy going again, but how was it to be done? There were three schools of thought. The Keynesians’ Walter Heller was the Head of the Council of Economic Advisors. He said full speed ahead with expansionary monetary and fiscal policy. The Chamber of Commerce said full speed astern; tight money and tight fiscal policies. The Council of Economic Advisors, dominated by James Tobin (with Paul Samuelson behind the scenes) advocated adopting the new classical paradigm, the "new classical synthesis," as it was called, which combined low and falling interest rates, expansionary monetary policy to get interest rates down, and a policy of expanding investment with higher taxes and a budget surplus to siphon off the inflationary consequences of expansionary monetary policy. Those were the three possibilities.

When I got to the fund, the first thing I was asked to do was write something on this work. So I wrote an article that became one of my most famous on economic policy—the appropriate mix of monetary and fiscal policies for internal and external stability—in which I argued for a fourth alternative. We needed tight money to protect the balance of payments under fixed exchange rates, and tax cuts to get the economy going again.

Meanwhile, the US economy kept on in its own sluggish way under the new classical synthesis. It suffered from incipient inflationary pressure, stagnant growth, and high unemployment. And at the end of 1962, the year after my paper had come out, Jack Kennedy changed his policy. He decided to reverse the policy mix; he wanted tighter money to protect the balance of payments, and tax cuts. His changes set the stage for the great and glorious boom of the 1960s—the second of the great booms in the United States in this century.

The first great boom was from 1938 to 1945—the war time boom. The second was from the 1960s to 1969 or ’70. The third was the Reagan boom from 1982 to 1990, and the fourth is the great boom we’re in now that began in 1991 and is still going on. The current boom is the longest of the four, but it, too, is very dependent on the policy mix.

That whole episode of the 1960s to which I just referred came home to roost in the 1980s when Ronald Reagan came to power. Once again, he opted for tax cuts, but they were supply-side type tax cuts. This time, however, tight money did not protect the balance of payments, but stopped inflation, which was essential for the creation of that great boom.

The rise of inflation

Inflation was the big scourge of the late 1970s; between 1979 and 1981, the United States saw two-digit inflation, with a 13 percent inflation rate in 1980. After two years of sleeping, Reagan’s Paul Volker, Chairman of the Federal Reserve Board, woke up and tightened and corrected the situation. He became a hero for doing so, and rightly so, for that change brought about the elimination of inflation. The rest of the world had had more inflation than the United States did, but once the US got inflation down, other countries started to pick up on this and also reduced inflation.

In the late 1980s even Canada had an extremist policy in this regard. Then Bank of Canada Governor John Crow wanted to have zero inflation. The United States had 4 percent or even 3 percent inflation, so Canada was going to have zero inflation. After 6 years of killing the Canadian economy and appreciating the dollar, and then letting the dollar go way back down again, the economy is more or less the way it is now. It wasn’t a good episode for Canada.

But the bottom line is that all the OECD countries got back to price stability in the 1990s, so that the 1990s and the 1910s, the first decade and the last decade of the century, are bookends in terms of monetary stability. In both cases, at least in the advanced countries, you have monetary stability given by the gold standard in the first decade, and given by inflation-targeting, et cetera, in the last decade.

A lot of new things are going on in the world economy, particularly the globalization phenomenon, and every country has to cope with that in its own way. The new economy, the internet economy, the great technological advances, the product improvements and cost reductions that are taking place in such a glorious way are leading to a great expansion. The US economy, really the "miracle economy" since 1982, has created 38 million new jobs, which is more than the entire labour force in Germany, the world’s third largest economy. Tremendous expansion without inflation has been a wonderful experience for the United States. It has since led to merger mania and the advent of the euro.

The rise of the euro

The new euro currency is very important. It promises to be the most significant event in the international monetary system since the dollar took over as the most important currency from the pound sterling. This is because the euro has the power to reconfigure the system. As the expansion of the euro area continues, the euro will include 28 countries in the next 7 or 8 years—10 years at the most. Then in 10 years countries around the Mediterranean will become attached to the euro area. There are already 13 African countries associated with it who were formerly aligned with the French franc. This area is going to be big—probably 10 to 20 percent bigger than the United States. The euro area will be a rival contender and alternative to the dollar.

The world economy now has three zones of stability: the dollar area, the euro area, and the yen area. There is stability in each area. However, there is one sore point (and this is where our current bookend at the end of this century isn’t as good as the bookend at the first part of this century). We have internal balance in each zone of stability, but we have volatility in exchange rates between these zones. This volatility is very damaging.

Just think: if you had the kind of volatility in the dollar/euro rate that you had in the deutschmark/dollar rate over the past 25 years how disastrous it would be for Europe—and also the United States, but to a lesser extent. Twenty-five years ago, in 1975, the dollar was about 3.5 marks. In 1980, the dollar had fallen in half to 1.7 marks. Five years later, in 1985, the dollar was 3.4 marks—it had doubled. And then in 1992, in the peak of the Exchange Rate Mechanism (ERM) crisis, it fell to 1.4 marks and below. Now it’s about 2 marks. These were terrible fluctuations. This volatility would be catastrophic if it occurred for the European economy as a whole. That’s the big enemy—volatility of the rates.

Consider the yen/dollar rate. In 1985, the dollar was 250¥. Ten years later, in April 1995, it was 79¥. Only three years later, in June 1998, it was 148¥ and speculators said it was going up to 200¥. And now it’s 105¥. This volatility is terribly damaging to the rest of Asia.

The Asian crisis was partly—I won’t say all, but partly—caused by the appreciation of the dollar. When the dollar went from 79¥ to 148¥, the currencies of those countries that have pegs to the dollar had to appreciate with it. Consequently, the burden of their debts increased enormously over this period. That was, in part, what set those countries off track. So volatility is the major problem.

In fact, I and others are beginning a major campaign to minimize or reduce the fluctuations in rates. We want to get the three biggest banks—the G3 banks I’ll call them—of the euro, the federal reserve, and the Bank of Japan, to stop saying that they’re going to show benign neglect for their exchange rates, that their exchange rates don’t matter. Saying such things will only cause enormous damage to their own economies and will be catastrophic to the rest of the world. There’s got to be a way of bringing such a change about. It should be easy to correct because the three zones are stable. They have internal prices.

Even Keynes knew. In his wonderful 1923 book, The Treatise on Money, Keynes said that if you have an on-going conflict between internal and external stability (if the price level of gold is unstable abroad, or the dollar is unstable) how can the Bank of England fix the pound to gold or the dollar without importing that instability? But Keynes then said that if there’s stability in each country, then there’s no reason for changes in exchange rates; I agree with that completely. That’s why it would be very easy.

Creating a monetary union

Think of 11 countries creating a monetary union. What do they have to do to create such a union? First, they lock exchange rates, and then say that none of the 11 will have an independent monetary policy. Each country will run itself more or less like a currency board. Then you have a single, central bank that makes a decision about expansion or contraction. You pool the advisors so everybody participates; the decisions about whether to expand or contract are the equivalent of the open market committee. Then you make an arrangement dividing up the seignorage for monetary expansion, which in Europe is done in proportion to stock-holding interests. You could do exactly the same thing with the Bank of Japan, the Federal Reserve, and the European Central Bank, and you could have a three-currency monetary union, or a single currency monetary union.

A single-currency monetary union would do exactly what the Europeans are doing, and there’s no harm in that. There’s no reason why such a union couldn’t be possible as long as the countries agreed on their inflation targets, and also agreed on the common index for measuring that target. Of course, there will always be some people who say, "contract" or "expand" in a committee, but regardless, they’ll be trying to establish stability for the common area as a whole, and that sort of arrangement would work.

However, it is politically unrealistic to talk about a one-currency monetary union. It won’t happen. The US is not going to scrap the dollar; it has been the most important currency in the twentieth century and probably will be for much of the twenty-first century.

You could, however, have a three-currency monetary union that would do exactly the same thing as a single-currency union. You could have the Bank of Japan fixing the yen at 100¥ to the dollar. The yen would become the penny in the system. You could have the euro fixed to the dollar whereby one euro equals one dollar. Each system would run its policies like a currency board, and the advisors of each would form a committee to decide whether to expand or contract, or whether to buy American assets, European assets, or Japanese assets. You would also have a common index of inflation. Thus, you could run a three-currency monetary union on the same basis as a one-currency union. You would probably want to have an opt-out clause for political reasons in case one or two of the countries resorted to an inflation tax, but you could still keep the coherence of the system together. It would be a wonderful blessing for the world if we could get to a common monetary system.

There is more chance for a common monetary union than one might think. Paul Volker, former head of the Federal Reserve System, wrote an article early this year in the New York Times advocating a world currency. He said that we need a global system, and this requires a global currency for which you need a level playing field. Obviously, we don’t have a level playing field now because the international monetary system is an oligopoly. It depends on the configuration of sizes. When one country has a GDP of 24 percent of world output, that country’s currency can’t be compared with other currencies because the importance, effectiveness, and efficiency of a currency depends upon its transactions area and ties. The euro area is about 20 percent less of world output than the dollar, and the yen area is about 15 percent of world output. Together, those areas constitute about 60 percent of world output.

Fixed or flexible exchange rates?

The subject of my lecture today is "Exchange Rates and Monetary Unions and their Relevance to Canada," but my message is clear. For 40 years I’ve been saying that Canada would be better off with a fixed exchange rate with the United States. That option would always be better for Canada as long as the American inflation and price level performance is better than or the same as that in Canada. If Canada fixed its currency to the US currency it would establish real confidence. (I am talking here about a real fix, such as with an automatic system operating the way the gold standard operated, or like a currency board operates.) In this situation, Canada becomes like California. It has no independent monetary policy—the same as California.

Yes, policy would be dominated by the United States, but as long as the United States is making decisions about expansion and contraction of the money supply in order to keep the price of the American basket stable, then that’s pretty good for Canada, because the Canadian part of the North American basket is one-eleventh. The US is 11 times the size of Canada, and small countries always gain when they fix their exchange rate to a large, stable neighbour.

This is not an issue of fixed or flexible exchange rates. You often hear academics arguing about fixed and flexible exchange rates. To me, this is almost an oxymoron. No economist would ever want to ask, "Should we have fixed or flexible exchange rates?" If any student said the biggest issue today between us is to have fixed or flexible exchange rates, I would automatically fail her or him. Why? Because first, the object of monetary policy is a stable price level. That’s a principle, dominating objective of monetary policy.

So how do you achieve a stable monetary policy? You can try to stabilize a commodity basket, or you can try to stabilize monitors like a money basket, or you can stabilize an exchange rate basket. Typically, for a country like Canada, a single-currency basket would be the US dollar. Fixed exchange rates dominate and determine a country’s monetary policy because they are an instrument of stabilization. Flexible exchange rates, on the other hand, are the absence of an instrument of stabilization—the removal of a target. Moving from fixed to flexible exchange rates removes an element of stabilization. After all, flexible exchange rates are consistent with price stability, but are also consistent with hyperinflation.

You need one of those three stabilizers. You must compare one monetary target against another. Almost nobody I know thinks any more that stabilizing some index, whether it’s M1, M0, or 1 and 2 and 3 by themselves is a good instrument of stabilization. It would be the right message for a country in hyperinflation to cut down some monetary aggregate, but by itself it just doesn’t work: it is too clumsy an instrument of stabilization.

The only relevant choice is between inflation targeting, stabilizing a basket, or exchange rate targeting. The United States has no alternative but inflation targeting. The European Central Bank would either fix the euro to the dollar, or have inflation targeting. Japan could either fix the yen to the dollar, or could have inflation targeting.

Canada is not like the United States. For countries like Canada there is a choice. The choice is whether inflation targeting, which Canada uses now, is better or worse than a monetary fix. To me, the big advantage lies in a monetary union with the United States. I don’t mean scrapping the Canadian dollar, I mean a really tight fix on the Canadian dollar so that in the long run, Canada would get the interest rates of the United States, it would become integrated with the US capital market, it would get the price level performance of the United States (by far the biggest customer in both exports and imports), and it would get transparency of pricing. What Canada wouldn’t get is the fluctuations of the dollar that cause shifting in and out of domestic and international goods industries. It wouldn’t get the falseness that comes from the fact that when the Canadian dollar is down at 62 cents some products are exported, but when it gets to 68 or 70 cents, those products are imported back again. Currently, there is a lot of waste motion which is one of the reasons why Canadians’ incomes are lower than Americans’.

The Bank of Canada likes to keep inflation targeting because it is a symbol of the flexible exchange rate. It’s like the tariff. The tariff was the big, nineteenth century symbol of Canadian nationalism. The flexible exchange rate is like a tariff, it’s like putting a mountain between the two countries. It greatly lowers the amount of trade coming into and out of Canada. Recent studies have shown that countries with the same currency trade an enormous amount. The amount of trade they do because of the same currency area, and the amount of capital movement that takes place is enormously higher, and is an indication of the fact that we’re under-trading at the present time. We also have the problem of high exchange rate volatility, which creates the great hedge fund enterprise. (I don’t want to say anything bad about hedge funds. I think that hedge funds are doing just what they should be doing in the world as it is right now, but I just think that the governments have been very remiss in what they’re doing. There is a total of $28 trillion of assets—about 80 percent of world GDP—under management in hedge funds. Those funds go in and out and back and forth around the world.) Just think of the waste that is going on, and imagine if you had world currency. All that would fall to zero.

Will change happen?

It is hard for a country or a minister of finance to say, "We’re now going to change our policy," which, after all, has been bad but not disastrous. It is not as though Canada is like Argentina, which had hyperinflation in the 1970s and ’80s, then three or four currency reforms and currency conversions, by which time everybody was so much against the alternative systems that the country went back to a system of stabilization based on a fixed exchange rate. For the last decade Argentina has had monetary stability. But it has taken leadership to get there. What happened in Argentina could occur only because they had Harvard-trained Domingo Cavallo as finance minister, and had President Menim solidly behind his initiatives. The country also had people like Carlos Rodriguez and Roque Fernandez, graduates from the University of Chicago (and, incidentally, students of mine) who had enough force to combat the IMF who always kept saying, "You have to float. You have to float. You have to float."

Similarly, the IMF kept saying to Indonesia, "You have to float. You have to float. You have to let the rupia fluctuate." And fluctuate it has done, up and down in the most insane system imaginable. But a country needs leadership to buck the IMF and develop a system of stabilization because it has to choose the exchange rate, has to be very carefully prepared, and has to get labour and management to agree on it. You don’t want monetary stabilization to be a political football; it should be a bipartisan move with everyone agreeing on it because you don’t want the next government changing the system when they are elected. Changes such as this are for the long term, and so require major organization.

Unfortunately, right now in the current structure of the world economy, the IMF, which should be providing leadership for countries that don’t have it, is doing exactly the opposite. Even though the IMF has put in a currency board in Bulgaria, Romania, Bosnia, and some other countries, they have not been enthusiastic. They are behind the curve on this.

Countries need leadership, an acquiescent head of the central bank, and a very strong minister of finance who knows what he is doing. Why can’t you have as the minister of finance a PhD in economics who has studied properly? (Of course you have to have the right PhDs—it’s not enough just to choose any PhD—and get the right advice.)

But I suspect that Canada is not going to move much in this direction. Canada will wait and see, and maybe if something occurs, maybe if there is a general stabilization, then Canada will feel confident enough to go ahead and stabilize the Canadian dollar too. In the meantime, Canadians will remain true to their instincts of risk aversion and will stay with the system they have.

Questions for Professor Robert Mundell

Dr. Michael Walker: In a Wall Street Journal article recently, you proposed— at least I thought you were proposing— a world currency sponsored by a World Bank. How do you square the notion of a monopoly world currency with your deep belief in a free market economy?

Professor Robert Mundell: The history of money has been the history of government. Since money was created in ancient Libya, it has been overvalued. It can only be kept overvalued by a restriction of supply. The restriction of supply requires a monopoly and the monopoly has to have some kind of control on the part of the government. By the way, when I propose a world currency as I did in congressional testimony to the Joint Economic Committee back in 1968, I’m not proposing a single currency for the world. I’m proposing a world currency that would be a stable currency, and to which any country could fix its own currency if it wanted to, or could use that currency if it so wished, but I wouldn’t insist that countries use it. Each country would make its own decision so that they’d only do it if they thought they’d gain from it.

MW: What advice would you give to young people starting their economic education?

RM: Everybody has to learn mathematics, but try to keep it under control. Don’t let it dominate your thinking. Then stand back and examine the world economy. Look at big gaps. Look at errors. Look at cases where the world economy is under-fulfilling, where there’s a big potential for improvement. That’s what institutions do. Your Institute is an example. You saw the need, in a world where government spending has shot up from an average of 25 percent to 55 percent in Europe and over 50 percent in Canada, for an institution that could be productive if you could make an improvement in getting that rate down. No economy has ever been able to survive when 50 percent of its GDP is accounted for by government spending.

MW: Larry King asked Jack Kemp if there was anything that low taxes didn’t cure. Jack Kemp replied: "Nothing." Do you agree?

RM: Well, low taxes will not cure an inefficient monetary system.

MW: When will the present USA boom end and why?

RM: Well, I would say not in a long time, in the sense of a boom, because I think this current expansion is quite different. First, it has been built on the heels of the supply-side tax cuts of the 1980s. It’s got the tremendous productivity improvements of the internet economy, the IT economy, that are pushing it forward by lowering costs. The old economy will still go through its cycles to some extent, and I can see that there will be some slowdown in the US economy in its growth rate, but as that slowdown occurs, the US now has available a weapon that it didn’t have as ready 10 or 12 years ago, and that is the potential for very sharp tax cuts. The US budget is not just in balance, it’s in surplus, and the US debt-to-GDP ratio has come down toward 35 percent and it keeps coming down the longer the boom goes on. That means that there is a great possibility for tax cuts. Whenever you can see the whites of the eyes of a recession, so to speak, then you can start to implement a set of tax cuts that will keep the economy going. After all, during Reagan’s years in office, income tax rates were lowered from 70 to 28 percent, but they went back up to 39.6 percent at the federal level alone, and counting state and local taxes, the marginal tax rate in the US is about 52 percent, so there’s a great need now for Reaganomics III, or supply-side economics III. However, I think because of that potential, which could be carried forward and advocated even by Democrats in the next administration who would have their hopes based on the success of the economy, I don’t look for a recession in the near future.

MW: You’ve just come back from Russia. Could you please comment on the monetary situation there.

RM: It’s terrible. But it’s better than it was. I had a lunch with the former Russian foreign minister. He thinks that under Vladimir Putin, Russia will have a stable government. I’m hoping that early in Putin’s administration, stable monetary policy will be a top priority.

I was asked to comment in Moscow on the possibility of forming a currency area around the ruble. I said, first, that no one wants a currency area around an unstable currency. The ruble would have to be stable, and stability must be very explicitly defined. It may mean stability against the euro, which is most probable for Russia, or stability against the dollar or some basket of the dollar and the euro. If that was the case, then for those countries that didn’t fear the political implications of the formation of a ruble monetary area, then the arrangement might be possible. This does not include the Baltic states, of course. There is a lot of incentive on Russia’s part to get back to monetary stability. I’m hoping the new government will give that a high priority.

Note

¹Dr. Harold Walter Siebens was a Canadian entrepreneur, oil man, and philanthropist who was a generous and crucial supporter of The Fraser Institute. In particular, Dr. Siebens provided support for the Institute during the very difficult recession years of the early 1980s when it was difficult to find others to provide substantial support.

Professor Robert Mundell was born in Kingston, Ontario. His undergraduate training was at the University of British Columbia where in his junior year he was the welter-weight wrestling champion and in his senior year the middle-weight wrestling champion. He went from UBC to the Massachusetts Institute of Technology and the London School of Economics, and received his PhD. from MIT in 1956 at age 24. He taught at Stanford University and the John Hopkins Bologne Centre of Advanced International Studies before joining the staff of the International Monetary Fund in 1961. In 1966 he joined the staff of the University of Chicago and became editor of the Journal of Political Economy. Since 1974, Robert Mundell has been professor of economics at Columbia University in New York City.

In 1970 he was a consultant to The Monetary Committee of the European Economic Commission and in 1972-1973 a member of its study group on Economic and Monetary Union in Europe. Because of the later association, Professor Mundell is sometimes regarded as the Father of the Euro.

Professor Mundell has written more than 100 articles in scientific journals and published 8 books. The impact of his scientific work was to change the theory and eventually the practice of inter- national macro economics. In 1999, the Royal Swedish Academy of Sciences awarded the Bank of Sweden Prize in Economic Science in Memory of AlfredNobel to Professor Mundell for his analysis of monetary and fiscal policy under different exchange rate regimes and for his analysis of optimum currency areas.

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