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2. Money, Stability, and Free Societies
- Author:
- Steve H. Hanke
- Publication Date:
- 06-2020
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Monetary instability poses a threat to free societies. Indeed, currency instability, banking crises, soaring inflation, sovereign debt defaults, and economic booms and busts all have a common source: monetary instability. Furthermore, all these ills induced by monetary instability bring with them calls for policy changes, many of which threaten free societies. One who understood this simple fact was Karl Schiller, who was the German Finance Minister from 1966 until 1972. Schiller’s mantra was clear and uncompromising: “Stability is not everything, but without stability, everything is nothing” (Marsh 1992: 30). Well, Schiller’s mantra is my mantra. I offer three regime changes that would enhance the stability in what Jacques de Larosière (2014) has asserted is an international monetary “anti-system.” First, the U.S. dollar and the euro should be formally, loosely linked together. Second, most central banks in developing countries should be mothballed and replaced by currency boards. Third, private currency boards should be permitted to enter the international monetary sphere.
- Topic:
- Debt, Foreign Exchange, Monetary Policy, Developing World, Inflation, and Currency
- Political Geography:
- Europe, United States of America, and European Union
3. Tariffs and Monetary Policy: A Toxic Mix
- Author:
- Michael D Bordo and Mickey D. Levy
- Publication Date:
- 01-2020
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- The ratcheting up of tariffs and the Fed’s discretionary conduct of monetary policy are a toxic mix for economic performance. Escalating tariffs and President Trump’s erratic and unpredictable trade policy and threats are harming global economic performance, distorting monetary policy, and undermining the Fed’s credibility and independence. President Trump’s objectives to force China to open access to its markets for international trade, reduce capital controls, modify unfair treatment of intellectual property, and address cybersecurity issues and other U.S. national security issues are laudable goals with sizable benefits. However, the costs of escalating tariffs are mounting, and the tactic of relying exclusively on barriers to trade and protectionism is misguided and potentially dangerous. The economic costs to the United States so far have been relatively modest, dampening exports, industrial production, and business investment. However, the tariffs and policy uncertainties have had a significantly larger impact on China, accentuating its structural economic slowdown, and are disrupting and distorting global supply chains. This is harming other nations that have significant exposure to international trade and investment overseas, particularly Japan, South Korea, and Germany. As a result, global trade volumes and industrial production are falling. Weaker global growth is reflected in a combination of a reduction in aggregate demand and constraints on aggregate supply.
- Topic:
- International Trade and Finance, Monetary Policy, Economic growth, Tariffs, and Industry
- Political Geography:
- Japan, China, Europe, Asia, South Korea, Germany, North America, and United States of America
4. Europe under US Monetary Hegemony: How the COVID-19 Pandemic Will Undermine a 100-Year-Old Relationship
- Author:
- Brendan Brown
- Publication Date:
- 10-2020
- Content Type:
- Policy Brief
- Institution:
- Hudson Institute
- Abstract:
- This policy study is based on the newly released book, Europe’s Century of Crises under Dollar Hegemony: A Dialogue on the Global Tyranny of Unsound Money, by Brendan Brown and Philippe Simonnot, published by Palgrave Macmillan. One hundred years ago, the United States emerged from the First World War and its immediate aftermath, including the Spanish flu pandemic, as the global monetary hegemon, exercising immense power over the Old Continent. This new power quickly became the source of huge instability in Europe, culminating in the collapse of the Weimar Republic. After World War II, the Bretton Woods system set new contours for US monetary hegemony, ultimately resulting in the great economic crisis of 1973–75. This woeful history continues to the present day: Dollar hegemony has not been a force for good. It could have been different. The United States and Europe would both have gained from a US hegemony based on sound money principle. Instead, the guiding characteristic of US monetary power has been inflation, especially around election time. According to the doctrine made notorious by Treasury Secretary John Connally, who served under President Nixon, “the dollar is our currency but your problem.” The US monetary regime’s further lurch toward fundamental unsoundness during the COVID-19 pandemic is not getting the new century of US monetary hegemony off to a new start. The “known unknown” is whether forces will emerge in Europe that will again challenge US inflationary dominance, as occurred under Germany’s leadership in the 1970s. Could high inflation in the post-pandemic US economy cause US monetary hegemony over Europe to crumble?
- Topic:
- Economics, International Trade and Finance, History, Monetary Policy, Hegemony, Transatlantic Relations, and COVID-19
- Political Geography:
- Europe and United States of America
5. The Economic and Monetary Union: Past, Present and Future
- Author:
- Marek Dabrowski
- Publication Date:
- 03-2019
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- Twenty years of euro history confirms the euro’s stability and position as the second global currency. It also enjoys the support of majority of the euro area population and is seen as a good thing for the European Union. The European Central Bank has been successful in keeping inflation at a low level. However, the European debt and financial crisis in the 2010s created a need for deep institutional reform and this task remains unfinished.
- Topic:
- Monetary Policy, European Union, Economy, Economic growth, Fiscal Policy, and Currency
- Political Geography:
- Europe, Poland, and European Union
6. Is Non-State Money Possible? mBank – CASE Seminar Proceedings No. 158
- Author:
- George Selgin
- Publication Date:
- 02-2019
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- "Depending on how one interprets the question that forms the topic of my talk, one can argue that the answer is obvious, or one can argue just the opposite. In one sense of course, it’s obvious that non-state money is possible. That’s the sense in which we ask only whether some kinds of non-state money are possible. And of course, the answer is yes. The vast majority of payments today, in Poland as elsewhere, are made with privately produced forms of money – that is, with bank deposits of various kinds – transferable by cheque or using debit cards. And there is nothing surprising about that. But of course, my assigned question can also be understood in a different and more interesting way. The interesting question is not whether some kinds of non-state- supplied money are possible. It is a different question, or rather two different questions. One of these is whether non-state circulating monies, or currencies, are possible. Can we rely on the private sector to supply hand-to-hand circulating means of payment? The other even more fundamental question is whether we can have a complete monetary system in which all forms of money supplied privately, and the state plays no substantial regulatory role. In fact, I intend to argue that non-state supplied currencies are also possible, and that completely private monetary systems, in which the state plays no important part, are possible as well. Indeed, I will argue, not only that these things are possible, but that history offers examples of them. That is, they are not just hypothetically possible. I plan to spend much of my time talking to you about these historical examples of privately produced currencies and private or mostly private monetary systems. I wish not merely to make it clear that private currencies and mostly private monetary systems really have existed in the past, but to point out to you that these private currencies and monetary systems have often been entirely or at least highly successful. We might even envy them today, given the performance of our own relatively heavily regulated monetary systems." - Prof. George Selgin writes in the introduction.
- Topic:
- Monetary Policy, Economic growth, Banks, Trade, and Cryptocurrencies
- Political Geography:
- Europe and Poland
7. The 1948 German Currency and Economic Reform: Lessons for European Monetary Policy
- Author:
- Gunther Schnabl
- Publication Date:
- 10-2019
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- Twenty years after the introduction of the euro, the European Monetary Union (EMU) is at its crossroads. Following the outbreak of the European financial and debt crisis in 2008, the European Central Bank (ECB) took comprehensive measures to stabilize the common currency. Interest rates were cut to and below zero and several asset purchase programs have inflated the ECB balance sheet (Riet 2018). Within the European System of Central Banks, large imbalances have emerged via the TARGET2 payments system, which can be seen as quasi-unconditional credit in favor of the southern euro area countries (Sinn 2018). While the ECB terminated its asset purchase program at the end of 2018 and is expected to increase interest rates in late 2019, financial instability is reemerging. Growing uncertainty about the fiscal discipline of the Italian government has triggered a significant increase in risk premiums on Italian government bonds. In particular, in Italy and Greece, but also in Germany, bad loans and assets remain stuck in the banking systems. In the face of the upcoming downswing, European banks do not seem ready for new financial turmoil. In this fragile environment, the future path of the EMU is uncertain. To enhance the stability of the EMU, a group of German and French economists has called for a common euro area budget, for a strengthening of the European Stability Mechanism as lender of last resort for euro area countries and banks, as well as for a common European deposit insurance scheme (Bénassy-Quéré et al. 2018). In response, 154 German economists have warned against transforming the EMU into what they call a “liablity union,” which systematically undermines market principles and wealth (Mayer et al. 2018). In 2018, a French-German initative to introduce a common euro area budget faced strong opposition from a group of northern European countries as well as from Italy, symbolizing the political deadlock concerning reforms of the EMU. This article explains the different views on the institutional setting of monetary policymaking in Europe from a historical perspective. It begins with a description of the economic and monetary order in postwar Germany. It then discusses the positive implications for the European integration process and the economic consequences of the transformation of postwar German monetary order. The final section offers some economic policy recommendations.
- Topic:
- Economics, History, Monetary Policy, Reform, European Union, Banks, and Currency
- Political Geography:
- Europe and Germany
8. How to evaluate China’s economy
- Author:
- Derek Scissors
- Publication Date:
- 01-2019
- Content Type:
- Special Report
- Institution:
- American Enterprise Institute for Public Policy Research
- Abstract:
- Official Chinese economic data are often the only game in town, but they are untrustworthy. Sometimes they prove inaccurate; during downturns they are falsified outright. Finding inconsistency in official statistics demonstrates the problem but offers no solution, since it is rarely clear which series is better. Examining 15 major indicators for importance and reliability shows that growth in gross domestic product (GDP) and GDP per capita should be deemphasized. To illustrate, China’s GDP per capita is twice as high as official per capita disposable income. The latter can be spent; the former is an accounting result. Another conclusion: Arguably the most valuable indicators are the worst measured. Debt is reasonably estimated at present, but factor productivity and human capital are vital to medium-term performance and receive far too little attention.
- Topic:
- Foreign Policy, Monetary Policy, GDP, and Economy
- Political Geography:
- China, Europe, and Beijing
9. Europe 1957 to 1979: From the Common Market to the European Monetary System
- Author:
- Joseph Halevi
- Publication Date:
- 11-2019
- Content Type:
- Working Paper
- Institution:
- Institute for New Economic Thinking (INET)
- Abstract:
- This essay deals with the contradictory dynamics that engulfed Europe from 1959 to 1979, the year of the launching of the European Monetary System. It focuses on how the macroeconomic frame- work of stop-go policies in the 1960s ended up privileging external – intra-European - exports at the expense of domestic demand. The paper offers a very tentative explanation as to why stop-go policies, by weakening domestic demand, did not put an end to the to the ‘long boom’ earlier as they should have. The French crisis of 1968-69 leading to the demise of De Gaulle is discussed at length, as is the renewal of the German export drive in the wake of a nominal revaluation of the D-Mark in 1969. Finally, the revival of labor struggles in Italy in the same year is put in the context of the structural weaknesses of the Italian economy as analyzed by the late Marcello de Cecco. The conclusion is that European countries had neither the political culture nor the institutional mechanisms to coordinate mutually advantageous policies. Their so-called cooperation was an exercise in establishing hegemony while defending the interests specific to the dominant economic groups of each country. The essay then deals with the formation of the EMS as an expression of efforts to establish and enforce economic dominance.
- Topic:
- Economics, Markets, History, Monetary Policy, Capitalism, Common Market, and Macroeconomics
- Political Geography:
- Europe
10. Virtual currencies and their potential impact on financial markets and monetary policy
- Author:
- Lukasz Janikowski and Marek Dabrowski
- Publication Date:
- 09-2018
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- Virtual currencies are a contemporary form of private money. Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast. This gives them good prospects for further development. However, they remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas. As with other innovations, virtual currencies pose a challenge to financial regulators, in particular because of their anonymity and trans-border character.
- Topic:
- Science and Technology, Monetary Policy, Economic growth, Currency, and Trade
- Political Geography:
- Europe, Poland, and European Union