Published January 4, 1993
The Wall Street Journal
The European monetary system is breaking down for the same reason the gold-exchange standard in 1931 and the Bretton Woods system in 1971 collapsed: the use of domestic currencies as international reserves. To describe the problem simply: For other countries to increase their foreign exchange reserves, the reserve currency country must purchase more wealth abroad than it sells–i.e., run a balance-of-payments deficit. This demand for wealth without a matching supply causes inflation of either goods or securiteis prices–usually both in succession.