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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. Is the Euro up for Grabs? Evidence from a Survey Experiment
- Author:
- Lucio Baccaro, Bjorn Bremer, and Erik Neimanns
- Publication Date:
- 07-2020
- Content Type:
- Working Paper
- Institution:
- Max Planck Institute for the Study of Societies
- Abstract:
- The COVID-19 pandemic may lead to a resurgence of the euro crisis. In this context, Italy seems particularly vulnerable: support for the euro is lower than in most other eurozone countries, and a possible exit could have serious consequences for the common currency. Based on a novel survey experiment, this paper shows that the pro-euro coalition is fragile in Italy and preferences are malleable. They are heavily dependent on the perceived costs of continued membership, as a majority of Italians would opt for Italexit rather than accepting a bailout plan requiring the implementation of austerity policies. Individuals who feel they have not benefited from the euro are most likely to support exit when faced with the pros- pect of austerity. This suggests that, differently from Greece, where voters were determined to remain in the euro at all costs, the pro-euro coalition may crumble if Italy is exposed to harsh conditionality.
- Topic:
- European Union, Eurozone, Voting, and Currency
- Political Geography:
- Europe, Italy, and Southern Europe
4. Increasing the International Role of the Euro: A Long Way to Go
- Author:
- Marek Dabrowski
- Publication Date:
- 08-2020
- Content Type:
- Special Report
- Institution:
- Center for Social and Economic Research - CASE
- Abstract:
- The euro is the second most important global currency after the US dollar. However, its international role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractiveness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union.
- Topic:
- European Union, Economic growth, Central Bank, Currency, and Trade
- Political Geography:
- Europe
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. The next generation of digital currencies: in search of stability
- Author:
- Gregory Claeys and Maria Demertzis
- Publication Date:
- 12-2019
- Content Type:
- Policy Brief
- Institution:
- Bruegel
- Abstract:
- Four major developments have challenged the status quo and reopened the debate on the forms that money will take in the future: 1) use of cash as a medium of exchange has declined; 2) distributed ledger technology (DLT) has led to the emergence of thousands of digital cryptocurrencies; 3) some global tech giants are planning to provide private digital currencies to their billions of users in the form of stablecoins; and 4) in turn, public authorities are thinking about providing their own digital currencies to the general public. These developments raise questions about the implications for financial stability, the transmission of monetary policy and financial intermediation. This Policy Contribution focuses on the consequences stablecoins and central bank digital currencies could have. Stablecoins, such as Facebook’s Libra, differ from earlier generations of cryptocurrencies in three fundamental ways. First, they would start with large networks of users and global accessibility, two pivotal features for the critical uptake of a new currency. Second, given the current limitations of DLT, including in terms of energy efficiency, new stablecoins would rely on (more) centralised systems to validate transactions. Third, stablecoins would focus particularly on reducing the volatility in the value of the new currency. These new features of stablecoins attempt to correct some of the critical deficiencies identified in first-generation cryptocurrencies, which meant they did not acquire the main functions of money. However, new stablecoins raise other questions and potentially create new problems. One issue could arise from the more centralised (permissioned) validation system, which could lead to collusion problems. Another issue could arise from the reserve system that is supposed to ensure the stability of stablecoins, such as Libra, which could be incompatible with the profit maximisation behaviour of a private issuer. Facebook’s Libra plan has been a wake-up call to central banks and governments which, afraid of losing their monetary sovereignty, have renewed their interest in central bank digital currencies (CBDCs) as a potential solution. CBDCs could make private digital currencies less attractive and slow down their adoption. But there are other reasons to give the general public access to central bank liabilities. One important reason to provide CBDCs to citizens is that if cash disappears, citizens will lose direct access to sovereign money. Another benefit of the introduction of CBDCs is that monetary policy could be strengthened by transmitting it directly to the general public. However, the introduction of CBDCs could also be disruptive and create risks. In particular, CBDCs could have major consequences for financial intermediation. These risks would have to be evaluated by policymakers before any decisions are taken. If CBDCs are introduced, central banks would have to carefully calibrate their properties to minimise these risks. But, eventually, if these risks – and in particular the risk of structural financial disintermediation – do materialise, central banks would have various instruments to counter them.
- Topic:
- Science and Technology, Central Bank, Currency, Cryptocurrencies, and European Parliament
- Political Geography:
- Europe
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. 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
9. From Meseberg to Nowhere? A Franco-German Impetus for the Eurozone
- Author:
- Eileen Keller
- Publication Date:
- 11-2018
- Content Type:
- Policy Brief
- Institution:
- Institut français des relations internationales (IFRI)
- Abstract:
- This study analyses the joint efforts by France and Germany to bring about a comprehensive reform of the European currency union. These efforts culminated in the joint Meseberg Declaration adopted in June 2018. The article contextualises these efforts with respect to the reforms realised so far and the different reform options at hand. Besides questions of economic viability and institutional deficits, the article tackles issues of political feasibility. “From Meseberg to nowhere” was the prognosis given by Werner Mussler, economic correspondent for the Frankfurter Allgemeine Zeitung in Brussels. Commenting on the outlook for the joint declaration by the French President and German Chancellor on 19 June, following protracted negotiations at the German Government's official guest house at Schloss Meseberg, near Berlin, the journalist was critical of both the compromises it contained on strengthening the euro area and the chances of these ever being implemented. There is no question that the negotiations on the development of the euro area come at a difficult time. However, there are still good grounds for reaching a different conclusion. Both valid economic and political reasons can be found for the reforms proposed in the declaration, the details of which have yet to be developed. Anyone broaching the subject realistically knows that negotiations on economic and monetary union have always been challenging, due to differing concepts of economic policy and divergent economic needs and interests. At the same time, the two figures responsible for the Meseberg Declaration are both exceptional political personalities whom have shown in the past that they can cope with difficult negotiations, and can achieve remarkable results – on condition that Angela Merkel remains in office.
- Topic:
- Regional Cooperation, Bilateral Relations, European Union, Economy, Negotiation, and Currency
- Political Geography:
- Europe, France, and Germany
10. Helsinki’s Interests: Why Does Finland Show Interest in the Middle East?
- Author:
- FARAS
- Publication Date:
- 10-2018
- Content Type:
- Commentary and Analysis
- Institution:
- Future for Advanced Research and Studies (FARAS)
- Abstract:
- The recent years have witnessed a growing interest from Helsinki in the transformations and interactions of the Middle East, as evident in the inauguration of academic institutes in the region, visits by diplomatic and parliamentary delegations, activities with research centers, proposals for the resolution of conflicts between political parties, meetings between joint business councils and representatives of chambers of commerce and enhancing the cooperation with Arab intelligence agencies. The Finnish government has several objectives within this calculus.
- Topic:
- Geopolitics, Investment, and Currency
- Political Geography:
- Europe, Middle East, Finland, Libya, North Africa, and Syria