chapter  4
19 Pages

The instability of the bloc floating regime

Our analysis has so far focused on the tendency for increased volatility among currency blocs as a trade-off for lower volatility within the blocs. According to our model in Chapter 2, this tendency should logically lead to the complete bloc-regionalisation of the world economy. But this is not what we observe. The question therefore is: how far will the process of bloc clustering go? Or rather, what are the forces pulling in the opposite direction?