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3491. Notes on Equilibrium Exchange Rates: January 2010

Author:
William R. Cline and John Williamson
Publication Date:
01-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In June 2009 we issued our annual update of estimates of fundamental equilibrium exchange rates (FEERs) for 34 major economies (Cline and Williamson 2009). At that time the dollar had already begun correction from the substantial overvaluation that had arisen from the strong safe-haven effect associated with the global financial crisis of 2008–09. In this policy brief we report on changes in disequilibria in the exchange markets since the date those earlier calculations referred to, namely March 2009. We first present estimates of the extent of movement toward FEER-consistent bilateral dollar exchange rates from March to December 31, 2009, and then look at how effective exchange rates have altered in the same period. We also re-estimate the FEER-consistent dollar rate for one important currency, the Korean won.
Topic:
Economics, Foreign Exchange, International Political Economy, and Monetary Policy
Political Geography:
Korea

3492. New PPP-Based Estimates of Renminbi Undervaluation and Policy Implications

Author:
Arvind Subramanian
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Is there reason to add to the proliferating set of estimates on the extent of renminbi undervaluation (see among others, Bergsten 2010; Cline and Williamson 2008 and 2010; Goldstein and Lardy 2008 and 2009; Frankel 2008; Reisen 2009; and Lee et al. 2008)? Yes, not least because these new estimates: (1) suggest that purchasing power parity (PPP)-based approaches to measuring renminbi undervaluation suggest that China's currency is undervalued by about 30 percent against the dollar and not the 12 percent recently reported (Bajaj 2010); and (2) are closer to and consistent with alternative approaches to estimating renminbi undervaluation.
Topic:
Economics, Foreign Exchange, International Political Economy, and Monetary Policy
Political Geography:
China

3493. The Substitution Account as a First Step Toward Reform of the International Monetary System

Author:
Peter B. Kenen
Publication Date:
03-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Today, the international monetary system is based largely on the US dollar, but reserve currency diversification has begun, thanks to the advent of the euro, and it is apt to continue. Eventually, the renminbi could acquire reserve currency status, and the resulting reserve currency diversification could be more disruptive than it has been to date. To forestall that possibility the quasi-currency issued by the International Monetary Fund (IMF), Special Drawing Rights (SDRs), could be made to play a larger role in the international monetary system, precluding potentially disruptive diversification and achieving more orderly growth in the stock of international reserves.
Topic:
Economics, International Political Economy, International Trade and Finance, and Monetary Policy
Political Geography:
United States

3494. The Winter of Their Discontent: Pyongyang Attacks the Market

Author:
Stephan Haggard and Marcus Noland
Publication Date:
01-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
On November 30, 2009, North Korea announced a reform to replace all currency in circulation with new bills and coins. North Korean officials have made no bones about their motivations: The “reform” constitutes a direct attack on the emerging market economy and the independence from state control that it represents. In an interview following the conversion, an official of the North Korean central bank noted that the reform was aimed at curbing private trade and underlined that North Korea is “not moving toward a free market economy but will further strengthen the principle and order of socialist economic management.”
Topic:
Economics, Markets, and Monetary Policy
Political Geography:
North Korea

3495. Hope Floats

Author:
John H. Makin
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
January ended on a note of diminished hope for a sustainable global recovery as stock markets retreated from their midmonth highs. Since mid-February, however, higher hopes for a sustainable global recovery have returned. Equity markets have rallied along with markets for corporate and global sovereign bonds. Some mitigation of perceived risks facing global investors has provided a chance for hope to “float up,” and it has done so. Tension over the cohesion of the European Monetary Union and, in particular, concerns over a possible sovereign-debt default by Greece have eased, and investors continue to hope that the debt problems in Greece will not spread to the rest of Europe.
Topic:
Economics, International Political Economy, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Europe and Greece

3496. Myths about Budget Deficits

Author:
John H. Makin
Publication Date:
02-2010
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
February always brings with it the president's proposals for taxing and spending in the coming fiscal year. The president's budget proposals are accompanied by congressional and administration estimates of the path deficits and government debt are expected to take in coming years. Last year, those projections, especially a three-year string of actual and projected deficits over a trillion dollars from 2009 through 2011, excited widespread comment and handwringing about runaway deficits and their allegedly damaging effects in the form of lower growth, higher inflation, and higher interest rates.
Topic:
Debt, Economics, Political Economy, and Politics
Political Geography:
United States

3497. The Year Ahead

Author:
John H. Makin
Publication Date:
01-2010
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
We can expect 2010 to be a volatile year. This likelihood is underscored by looking back at 2008 and 2009. Two thousand eight was a highly volatile year leading up to the collapse of Lehman Brothers in September, which was followed by the risk of a total systemic meltdown. That sharp and obvious risk spike prompted massive policy responses that were simply the largest that central banks, with rate cuts and liquidity provision, and governments, with tax cuts and spending increases, could manage. The result—beginning in March 2009—was a linear rise in the prices of risky assets, the result of massive relief once the slip into a global depression had been averted and the acute phase of the crisis in the financial sector had passed.
Topic:
Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
United States, Japan, China, and Europe

3498. Can Economic Reform Open a Peaceful Path to Ending Burma's Isolation?

Author:
Raymond Gilpin and Lex Rieffel
Publication Date:
03-2010
Content Type:
Policy Brief
Institution:
United States Institute of Peace
Abstract:
After decades of domestic conflict, military rule and authoritarian governance, Burma's economy could provide a viable entry point for effective international assistance to promote peace. Doing so would require a detailed understanding of the country's complex and evolving political economy. The lingering income and distributional effects of the 2008 Cyclone Nargis, anticipated changes associated with the new constitution and the 2010 elections and the Obama administration's decision to devote more attention to Burma suggest that the time is ripe for the creative application of economic mechanisms to promote and sustain peace. Looming challenges could derail Burma's prospects for economic and political stability. These challenges include irrational macroeconomic policies, failing to ensure all citizens enjoy benefits accrued from natural resources, endemic corruption, a flourishing illicit economy, a dysfunctional financial system and critical infrastructure bottlenecks. Failure to address these problems would frustrate peacebuilding efforts. A conflict sensitive economic strategy for Burma would focus on effective capacity-building, sustained policy reform, progressive steps to reduce corruption, fiscal empowerment of subnational authorities and prudent natural resource management. Success in these areas requires unwavering political will for sensibly sequenced policy improvements by domestic actors and finely targeted support from Burma's international partners.
Topic:
Conflict Resolution, International Relations, Diplomacy, Economics, Political Economy, and Governance
Political Geography:
Myanmar

3499. Trends in Electoral Violence in Sub-Saharan Africa

Author:
Dorina Bekoe
Publication Date:
03-2010
Content Type:
Policy Brief
Institution:
United States Institute of Peace
Abstract:
Studies indicate that violence in Africa's elections affects between 19 and 25 percent of elections. In many countries where electoral violence is a risk, it tends to recur and may consequently lead to an unfavorable view of democratization. The regularity with which electoral violence occurs suggests that underlying grievances or structural characteristics may be tied to the elections and fuel the violence. Electoral violence, especially recurrent, seems indicative of more widespread systemic grievances and tensions. Tensions over land rights, employment and ethnic marginalization are three dominant characteristics of recurring electoral violence. These areas intersect and are frequently manipulated by politicians. Some recent actions taken by the government and civil society may offer insights into reversing the trends of recurring violence. These actions warrant further analysis in order to improve strategies to reduce violence.
Topic:
Conflict Resolution, Political Violence, and Democratization
Political Geography:
Africa

3500. Health Initiatives and Counterinsurgency Strategy in Afghanistan

Author:
Leonard Rubenstein
Publication Date:
03-2010
Content Type:
Policy Brief
Institution:
United States Institute of Peace
Abstract:
An initiative by the Ministry of Public Health in Afghanistan to expand health services throughout the country, including rural communities, and supported by donors including USAID, has vastly expanded access to primary health care services, significantly reduced child mortality, and increased the capacity of the Afghan government to provide an essential service to its people. The program is based on principles of equity, national ownership, community engagement, and women's equality, and it warrants continued development. Many challenges remain, not least expanding services in insecure areas, and a more stable environment could better enable the Ministry of Public Health to achieve its goals. The U.S. military has supported health services development for the Afghan army and also offers significant emergency care services to civilians in insecure regions, training for health workers, construction of health facilities and other health-related programs. The military's civilian health initiatives, largely disconnected from the Ministry of Public Health, are short term, ad hoc, and unsustainable, and to date have lacked a consistent rationale or strategy, and have not been subject to evaluation. U.S. counterinsurgency strategy seeks to mesh development and security objectives through activities that enhance the legitimacy of the Afghan government in the eyes of its people. In the field of health, there are considerable tensions between counterinsurgency and development strategies, which must be addressed to increase the capacity of the government and meet health needs of the people.
Topic:
Security, Development, Health, and Counterinsurgency
Political Geography:
Afghanistan and United States