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The Political Economy of Monetary SolidarityUnderstanding the Euro Experiment$
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Waltraud Schelkle

Print publication date: 2017

Print ISBN-13: 9780198717935

Published to Oxford Scholarship Online: April 2017

DOI: 10.1093/acprof:oso/9780198717935.001.0001

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Monetary Solidarity in Financial Integration

Monetary Solidarity in Financial Integration

(p.266) 9 Monetary Solidarity in Financial Integration
The Political Economy of Monetary Solidarity

Waltraud Schelkle

Oxford University Press

Chapter 9 compares the euro area’s cross-border payments system TARGET with the cross-border payments system ISA in the US. They performed very similarly during the extraordinary monetary times of 2008–13, replacing the interbank market on a truly impressive scale. There was no US equivalent to the adversarial politicization that a platform for cross-border payments attracted in Germany and subsequently in the blogosphere. Cross-border payments systems differentiate a monetary union from a fixed exchange rate system and have proven to be an effective insurance against so-called “sudden stops” of capital flows. Sudden stops interrupt the financial flows that allow countries to run current account surpluses or deficits for long periods. However, these payments systems also facilitated capital flight which raises the question of whether this is an institution of monetary solidarity.

Keywords:   euro area break-up, capital flight, cross-border payments, hedging, sudden stops, TARGET debate

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