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61. 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

62. 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

63. The Impact of Monetary Policy on Exchange Rate and Its Policy Implication

Author:
Deok Ryong Yoon, Soyoung Kim, and Jinhee Lee
Publication Date:
01-2020
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
In this study we aim to clarify the different extents to which monetary policy influences foreign exchange rate determination between the monetary policies of small open economies with international currency and those without international currency, and use empirical research to explain why. Based on the analysis above, we make some policy suggestions.
Topic:
Foreign Exchange, Monetary Policy, Economic Policy, and Currency
Political Geography:
South Korea and Global Focus

64. To what extent are tariffs offset by exchange rates?

Author:
Olivier Jeanne
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
In theory, tariffs are partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
Topic:
Economics, Tariffs, Exchange Rate Policy, and Currency
Political Geography:
North America and United States of America

65. The Causes, Effects, and Manifestations of the Money Laundering Problem in the Former Soviet Union

Author:
Yehuda Shaffer and Stefan D. Cassella
Publication Date:
02-2020
Content Type:
Special Report
Institution:
Georgetown Journal of International Affairs
Abstract:
In the past few years, a number of European banks have been implicated in money laundering scandals in countries such as Cyprus, Malta, Latvia, and, most recently, Scandinavia. Although European and international voices are putting pressure to take further action by all including the banks against this, the issue continues to emerge in the continent. In this short article, we attempt to explain this trend and how might it be resolved.
Topic:
Crime, Economics, Finance, Business, Financial Crimes, Banks, and Currency
Political Geography:
Russia, Soviet Union, Latvia, Scandinavia, Cyprus, and Malta

66. Syria’s Economic Crisis Sparks Rare Protests in Regime Territory

Author:
Oula A. Alrifai
Publication Date:
01-2020
Content Type:
Policy Brief
Institution:
The Washington Institute for Near East Policy
Abstract:
Besides highlighting Assad’s financial mismanagement, the recent unrest gives the international community a genuine opportunity to push for transition while bolstering the more prosperous local administration in the northeast. Since mid-January, shop owners, government employees, students, and even children have been gathering in the streets of various Syrian communities to express their frustration with the Assad regime’s economic policies and untruths. Although the protests remain small for now, the fact that they have persistently carried on in the middle of regime-controlled territory highlights Bashar al-Assad’s potential vulnerability on these issues. In Suwayda, a Druze-majority province in the south, residents have protested the sharp drop in the value of the Syrian pound/lira and the deteriorating economic situation in general. In the central-western town of Salamiya, protestors were seen chanting “we want to live.” And in the Suwayda town of Shahba, demonstrators raised loaves of bread in the air while openly criticizing Bouthaina Shaaban, Assad’s political and media advisor. The latter protest was partly spurred by a recent interview on the pro-Assad television network al-Mayadeen, where Shaaban not only claimed that the country’s current economy is “fifty times better than what it was in 2011,” but also declared that “Syrians are self-sufficient in everything.” In response, protestors sarcastically noted that her comments referred to her own household’s economy, not Syria’s. Elsewhere, former agriculture minister Nour al-Din Manna described Shaaban’s remarks about the war-torn country as “hard to believe,” and a closer look at the country’s finances supports this disbelief.
Topic:
Foreign Policy, Economics, Syrian War, and Currency
Political Geography:
Middle East, Lebanon, Syria, and United States of America

67. Harry Johnson's "case for flexible exchange rates"—50 years later

Author:
Maurice Obstfeld
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Fifty years ago, Harry G. Johnson published "The Case for Flexible Exchange Rates, 1969," its title echoing Milton Friedman’s classic essay of 1953. Though somewhat overlooked today, Johnson’s reprise was an important element in the late 1960s debate over the future of the international monetary system. In this Working Paper, Obstfeld lays out the historical context in which Johnson’s “Case” was written and read and then examines Johnson’s main points and sees how they stand up to nearly five decades of experience with floating exchange rates since the end of the Bretton Woods system. He also reviews the most recent academic critiques of exchange rate flexibility and asks how fatal they are to Johnson’s basic argument. He concludes that the essential case for exchange rate flexibility still stands strong.
Topic:
History, Monetary Policy, Economy, Central Bank, and Currency
Political Geography:
North America and United States of America

68. Taming the US trade deficit: A dollar policy for balanced growth

Author:
Joseph E. Gagnon
Publication Date:
11-2020
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
President Donald Trump launched a trade war to eliminate the longstanding US trade deficit. But the trade deficit has only grown on his watch because tariffs were the wrong policy choice. Trade deficits are not always a bad thing, but a wealthy country like the United States should not run a perpetual deficit. Decades of US trade deficits have piled up debt that makes future generations of Americans less well off, as they must pay interest and dividends to foreigners. Cheap imports and the decline in exports have also contributed to the loss of a significant number of US manufacturing jobs. The main cause of the deficit is a secular overvaluation of the dollar, driven by excessive financial flows into dollar assets from foreign official and private investors. Although Trump’s policies have failed, achieving balanced trade is not a hopeless quest. President-elect Joseph Biden should direct his Treasury secretary to pursue a more sensible dollar policy that can tame the deficit without violating any international norms or rules.
Topic:
Economic Growth, Currency, and Trade Deficit
Political Geography:
North America and United States of America

69. Using purchasing power parities to compare countries: Strengths and shortcomings

Author:
Patrick Honohan
Publication Date:
12-2020
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
Good international economic policy requires good comparative data on national economic performance. In May 2020, the World Bank published the latest comprehensive update of purchasing power parities (PPPs), as part of the International Comparison Program. Produced for 176 countries, these PPPs are used to convert data (especially GDP and other quantities based on national income accounts) from national currencies to a common basis in a way that is meaningful for economic analysis. PPP-adjusted data are essential because the distortions caused by sharp exchange rate movements are significant, especially for times of macroeconomic turbulence. The newly released PPP data contain fewer surprises than those published in previous updates and are an invaluable tool, but Honohan explains why PPPs should be used with caution and an understanding of their limitations. Apart from removing distortions caused by market exchange rate movements, PPPs remove the impact of other factors affecting relative prices, especially productivity differences, which Honohan argues should not be removed if one wishes to compare the overall economic size or strength of a country or region. Adjusting for productivity, he finds that the United States retains its position as the world’s largest economy for the time being, and the European Union (even without the United Kingdom) is just ahead of China.
Topic:
World Bank, Economic Growth, Currency, Data, and Productivity
Political Geography:
China, Europe, and United States of America

70. Towards a Political Economy of Monetary Dependency: The Case of the CFA Franc in West Africa

Author:
Kai Koddenbrock and Ndongo Samba Sylla
Publication Date:
06-2019
Content Type:
Research Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
This paper focuses on the most neglected case of monetary dependency: the CFA franc. This currency arrangement was born in 1945, during the colonial era, but it still operates in the same ways more than 70 years later in fourteen countries in Africa, mostly former French colonies. Engaging with the seminal African scholarship by Joseph Pouemi on internal and external monetary repression and the emergent literature on “financial subordination,” we introduce the notion of the “chain of monetary dependency,” consisting of an external and an internal part. We argue that the CFA franc provides an extreme but paradigmatic example of this chain. The CFA franc is paradigmatic because of the very strong external repression of monetary and financial policy through US dollar and euro dependence. Internally, the CFA franc arrangement radicalizes the constraints imposed on all central bank policies and bank-firm relations in the Global South and makes it more difficult to pursue growth strategies geared towards the well-being of the broader population.
Topic:
Economics, International Political Economy, Monetary Policy, and Currency
Political Geography:
France