Salvatore Biasco and the instability of world economy in the perspective of “currency cycles”

With his essay on “Exchange rates and the international economy” from the late 1980s (1987), Salvatore Biasco gives rise to an important theoretical reasoning about the flexible exchange rates regime, adopting a Keynesian perspective and making a strong criticism of the exchange rate models based on the “efficient markets” neoclassical hypothesis. Within an analytical framework where the exchange rate is a financial variable and portfolio choices are made under uncertainty and bounded rationality, it is shown that short run speculation in currencies enhance fluctuation movements, causing structural disequilibrium in real economy that feeds back into exchange rate dynamics and makes the macroeconomic scenario increasingly unstable. Along these lines Biasco’s work in following years gives further insights into the development of world economy up to the outbreak of the 2007-2008 international crisis, focusing on the role played by the dollar in the international monetary system and on the increase of financial fragility in capitalist economies as a result of instability in currency markets.