Sunday, September 18, 2011

Report — Reforming the international monetary system


Some prominent economists argue that failures in the international monetary system are the root cause of the global crisis. This column introduces a new eReport arguing that, at the very least, the international monetary system is inefficient and destabilising for the global economy. It proposes a number of reforms, the common thread of which is to increase the conditional supply of liquidity and reduce its unconditional demand.
by Emmanuel Farhi, Pierre-Olivier Gourinchas, and Hélène Rey at VOXeu. The authors are all associated with CEPR, of which Dean Baker is co-director.

5 comments:

Shaun Hingston said...

Who designed the euro? Why did they leave out the 'base money creation' component? It seems a bit stupid to create a currency that has a finite supply......

Did they hope that there would eventually be a crisis to create the 'money creation component'?

Surely the euro architects understood the implications of not building the 'money creation component'............

Why sign the countries of Europe up for a half-baked system?

To me there is only two answers, either the architects are extremely stupid or this was their plan.

Crazy.....

shaun.hingston@hushmail.com

Shaun Hingston said...

What happens to government bonds when they expire if held by the central bank? Does the treasury have to issue more bonds to cover the face-value of the expired bond? Is is there some other mechanism that does not rely upon debt issuance?

Tom Hickey said...

The euro was designed as a common currency in the expectation that this would lead to greater unity and ultimately a United States of Europe capable of competing against the US and the emerging great powers, specifically BRIC. The EZ is now in a position of having to go forward to greater unity or else pull back. We'll have to see what happens.

Tom Hickey said...

What happens to government bonds when they expire if held by the central bank? Does the treasury have to issue more bonds to cover the face-value of the expired bond? Is is there some other mechanism that does not rely upon debt issuance?

Both the Fed and Treasury books have to balance, so I assume that if the Fed is holding tsys when they expire, their tsy account is marked down, and the reserve account marked up by marking down the Treasury's reserve account. If the government fiscal balance is in surplus, the reserves are available in the Treasury's account. If there is a deficit, then the Treasury issues new tsys to replace the maturing ones ("rolls over the debt") to get the reserves needed. I'm not up on the details of national accounting procedure, though, so someone please correct me if my assumption is off-base.

Tsy issuance is only necessary due to politically imposed restraints on direct issuance of currency. Beowulf has shown how to get around this restraint legally using platinum coin seigniorage.

Ryan said...
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