Dual Currencies Harold James, Princeton Imperial College Conference: Removing the Zero Lower Bound.
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Transcript of Dual Currencies Harold James, Princeton Imperial College Conference: Removing the Zero Lower Bound.
Classical Definitions of Money
• Unit of Account (for fiscal purposes)• Store of Value (denomination of future
contracts)• Means of Exchange (the heart of the
payments system)
Contemporary Debate
• Euro discussion: a currency without a country (de Grauwe)
• Financialization / financial globalization / financial elasticity (Borio)
• A shock absorber (Larry Neal)• Inherently more stable (Milton Friedman)• But in practice – outside self-governing city
states and the United Provinces - frequent alteration of relationship of unit of account and metallic unit (debasement)
Dollarization
• Weimar Germany• Yugoslavia in late 1980s• Russia in early 1990s• Argentina … repeatedly
3. Synthetic Currencies as Response to Currency Instability
• Since mid-1970s ECU: European Investment Bank, Euratom, ECSC
• Dec. 1981 300m ECU deposits; June 1985 33,432 m
• Successful… until 1992-1993
• Hard ECU?• SDR? Zhou Xiaochuan, in 2009 : “The desirable
goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.”
4. Cross-border creation of debt
• Borio:“liberalised financial systems weaken financing constraints, thereby providing more room for the build-up of financial imbalances”
• Need for backstop: central bank swap lines (after Sept-Oct 2008)
• Carry trades fueled by low interest rate environment