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1978 will probably turn out to be one of the most momentous years in the post‐war history of international monetary affairs. It was the year in which the leaders of the European Economic Community (EEC) made the first positive steps towards the establishment of a European Monetary System (EMS). It was also the year in which members of the International Monetary Fund (IMF) adopted the Second Amendment to the Fund's Articles of Agreement.

The equation of unified knowledge says that S = f (A,P) which means that the practical solution to a given problem is a function of the existing, empirical, actual realities and the future, potential, best possible conditions of general stable equilibrium which both pure and practical reason, exhaustive in the Kantian sense, show as being within the realm of potential realities beyond any doubt. The first classical revolution in economic thinking, included in factor “P” of the equation, conceived the economic and financial problems in terms of a model of ideal conditions of stable equilibrium but neglected the full consideration of the existing, actual conditions. That is the main reason why, in the end, it failed. The second modern revolution, included in factor “A” of the equation, conceived the economic and financial problems in terms of the existing, actual conditions, usually in disequilibrium or unstable equilibrium (in case of stagnation) and neglected the sense of right direction expressed in factor “P” or the realization of general, stable equilibrium. That is the main reason why the modern revolution failed in the past and is failing in front of our eyes in the present. The equation of unified knowledge, perceived as a sui generis synthesis between classical and modern thinking has been applied rigorously and systematically in writing the enclosed American‐British economic, monetary, financial and social stabilization plans. In the final analysis, a new economic philosophy, based on a synthesis between classical and modern thinking, called here the new economics of unified knowledge, is applied to solve the malaise of the twentieth century which resulted from a confusion between thinking in terms of stable equilibrium on the one hand and disequilibrium or unstable equilibrium on the other.

There have been three essays in international monetary reform during the past 40 years. The first was unique in that, at Bretton Woods in 1944, representatives of two nations dominated the planning of a world monetary system which was, in essence, to endure for twenty‐five years. The uniqueness of this lay in the clean start made possible by the vacuum left by the war — an opportunity certainly not to be repeated. The fact that the Bretton Woods system prevailed, with modification and adaptation, for almost as long as the international gold standard testifies to the fact that its planning was not ill done.

Explores how European monetary systems have become an heterogeneous conglomerate with the passing of time, questioning the failures of the modern gold standard and the international monetary fund. Asks what kind of monetary and economic union is desirable, examining the choice in terms of the monetary and economic systems. Offers practical measures for the realization of a free and stable monetary and economic union which can be taken at community and national levels. Concludes with an examination of the problems of the accumulated US dollar in European central banks.

The most prominent and persistent problems of our global monetary system are instability and imbalances. We propose an international monetary model to solve these problems while at the same time move the model closer to Maqāṣid Sharīʿah (objectives of Sharīʿah). We name this an organic global monetary model or abbreviated as OGM. OGM is an international monetary model directly built on the national monetary system of each member country so that the two can co-exist.

Model design, theory and literature.

The model can eliminate interest rates at the central bank level, create non-tradable international money, and make a more stable international monetary system.

Original.

The functioning of the international monetary system as institutionalised under the Articles of Agreement of the International Monetary Fund after World War II began to deteriorate after 1957. By that date many European countries had sufficiently recovered or improved their competitive positions in world markets to enable them to replenish their external reserves and make their currencies convertible. Up to that point their acquisitions of gold and US dollars must be viewed as a healthy redistribution of international reserves, But thereafter dollar surpluses replaced the alleged dollar shortages of earlier years on international markets. Recurring runs on the dollar appeared, vying with the periodic runs on sterling as threats to the stability of the system.

This chapter argues that monetary integration must precede, rather than follow, monetary unification, in order to avoid the occurrence of structural and systemic crises. It briefly overviews the relevant literature on european monetary union (EMU) with regard to the criteria to set up an optimum currency area (OCA) according to the mainstream view. It then points out that adopting the euro as single currency for a number of heterogeneous countries led inevitably to a number of major negative effects, so much so because of the counterproductive financial constraints induced by the Euro-area fiscal and monetary policies framework. Particularly, the lack of fiscal transfers between these countries and the dogmatic attitude of the European Central Bank (ECB) as regards its policy strategy and goal increase, rather than reducing, the unemployment rate, and the degree of financial instability across the euro area. In fact, a way out of the euro area exists without renouncing to the (long-run) benefits of monetary integration. It implies that countries whose population suffers most of “fiscal consolidation” introduce their national currencies again, limiting the use of the euro to their central banks only, in order for them to settle all international trade and financial-market transactions carried out by residents in these countries. This monetary–structural reform will be instrumental in increasing financial stability and employment levels across Europe, thereby inducing positive effects also for trade and public finance.