It is daunting to review a book claiming that everything you believe is wrong. Fortunately, William Hudson's The Libertarian Illusion also attacks many things that neither I nor very many other libertarians believe. This gives courage for the rest.
This issue of the Cato Journal features articles that were first presented at the Cato Institute's 25th Annual Monetary Conference, November 14, 2007. The theme of that conference—Monetary Arrangements in the 21st Century—raises important questions about the types of monetary regimes that best protect the value and stability of money while promoting economic freedom.
Montagu Norman, the governor of the Bank of England from 1921 to 1944, reputedly took as his personal motto, “Never explain, never excuse.” Norman's aphorism exemplified how he and many of his contemporaries viewed the making of monetary policy—as an arcane and esoteric art, best practiced out of public view. Many central bankers of Norman's time (and, indeed, well into the postwar period) believed that a certain mystique attached to their activities and that allowing the public a glimpse of the inner workings would only usurp the prerogatives of insiders and reduce, if not grievously damage, the effectiveness of policy.
In recent years, China has experienced rapid social and economic development. Against this backdrop, growing pressure for renminbi appreciation emerged and China's trade surplus and foreign reserves increased rapidly. This article explains the development of the RMB exchange rate by examining productivity growth and institutional factors, such as the transformation of the foreign exchange rate system and legal reforms to strengthen the rule of law.
This article outlines our thoughts on the following three issues. First, will the renminbi become an international currency in the foreseeable future? Second, what does the international use of the renminbi mean for Hong Kong? Third, should the Hong Kong dollar exchange rate be repegged to the renminbi?
Since China revalued its currency against the U.S. dollar by 2.1 percent in July 2005, from RMB 8.27 per US$ to RMB 8.11, the RMB has appreciated by a further 14 per cent percent to about RMB 6.97 per US$ (as of May 2008). On a trade-weighted basis, however, the currency has appreciated less than half this amount. Using J.P. Morgan's trade-weighted index (broad basis) for the RMB, the currency appreciated just 6.1 percent in nominal terms between August 2005 and May 2008. Although the currency has been very gradually appreciating, the flexibility promised by China's leaders has been more illusory than real, and, more importantly, the underlying international payment imbalances have continued to widen both in absolute terms and as a fraction of GDP.
As China's economy has continued its remarkable expansion and gained an increasingly important role in the global economy, China's currency, the renminbi (RMB), has also captured growing attention from investors and policymakers around the world. In this article, I briefly discuss three significant issues concerning the renminbi—namely, the near-term direction of the exchange rate, the renminbi's convertibility in the medium term, and the currency's international role down the road in the future.
This article is intended to be a sort of flyover, examining certain key aspects of monetary and real exchange rate economics from a convenient distance. In it I try to avoid getting into technicalities that are interesting mainly to specialists. I focus instead on essentials that are critical to a proper understanding of the economic processes involved, and on a few real-world examples that show the usefulness and relevance of our fundamental theoretical constructs.
Few topics in macroeconomics are as contentious as capital account liberalization and exchange rate regimes. This article attempts to briefly summarize what we have learned through the turbulent 1990s and the relatively benign 2000s. It is obviously not intended to review the massive literature on these topics, only to distill the main policy conclusions—or at least what I think are the main policy conclusions.
The New Neoclassical Synthesis is a natural starting point for the consideration of welfare-maximizing monetary arrangements in the international context. Alternatively known as the New Keynesian model, this consensus model of monetary policy deserves our attention because it embodies cumulative advances in theory and policy informed by decades of monetary experience from around the world. The consensus model with its prescription for price stability serves today as the foundation for thinking about monetary policy at central banks and universities worldwide.