Ronald McKinnon

Research: International trade and finance, economic development, monetary theory and policy; money and banking
Current Research: Trade and financial policy in China and other less developed and transitional economies, international finance and currency crises, Japan’s liquidity trap, the world dollar standard, and market-preserving federalism, China and East Asia
Teaching: International trade and finance, economic development, monetary theory and policy, financial control in developing and liberalizing socialist economies, money and banking

Ronald I. McKinnon is an applied economist whose primary interests are international economics and economic development—with strong secondary interests in transitional economies and fiscal federalism. Understanding financial institutions in general, and monetary institutions in particular, is central to his teaching and research. His interests range from the proper regulation of banks and financial markets in poorer countries to the historical evolution of global and regional monetary systems. His books, numerous articles in professional journals, and op-eds in the financial press such as The Economist, The Financial Times, and The Wall Street Journal reflect this range of interests.

McKinnon was among the first (together with his Stanford colleague, Edward S. Shaw) to analyze "financial repression" as a substantial barrier to successful economic development. In the 1960s and 1970s, ongoing price inflation combined, with numerous government interventions to set interest rates and direct the flow of credit, had shrunk the deposit base for domestic bank lending throughout the developing world. His first book, Money and Capital in Economic Development (1973), analyzed why the prevailing economic doctrines of the time had become too tolerant of inflation and of state interventions in the credit mechanism. Without proper doctrinal constraints, politicians were only too happy direct the flow of credit to suit their own ends.

But identifying the deleterious effects of financial repression proved to be easier than escaping from it. Thus, in The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy (2nd edition, 1993), McKinnon outlined the appropriate sequencing of liberalizing government policies in domestic finance and foreign trade for securing open markets. He applied this analysis to developing countries and to the former communist states of Eastern Europe and East Asia-with a particular interest in why the Chinese seemed to be more successful in getting the order of liberalization "right."

McKinnon's other major area of interest has been the study of international money and finance. He has focused on how the use of national currencies, only some of which have the important property of being convertible, allows international trade to be effectively monetized and multilateral rather bartered and bilateral. But financial volatility in this multi-currency world can be (and often is) unacceptably high. Unless the underlying "rules of the game" linking national currencies are properly understood and implemented, sharp swings in exchange rates, and currency runs followed by crashes, are all too commonplace.

These rules of the game, including the private institutions of international exchange as well as government policies, can only be properly understood in historical perspective—from the late 19th-century gold standard, the attempt to write down a new set in the Bretton Woods Agreement of 1945, through various phases of what quickly became the postwar dollar standard. In Money in International Exchange: The Convertible Currency System (1979), McKinnon analyzed why and how the dollar came to be used as an international vehicle and reserve currency among banks, and the primary currency of invoice in international commodity trade. In The Rules of the Game: International Money and Exchange Rates (1996), McKinnon focussed more on macroeconomics-and how the rules of the dollar standard could be (could have been) modified to make the world economy more stable in the postwar era.