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More scary economic forecasts, recommendations
scottm21166
Member Posts: 20,723
Op-ed
Why the World Needs Three Global Currencies
C. Fred Bergsten
The dominant international role of the dollar, once considered a US privilege, has now become a burden. The dollar's dominance enables the United States to live beyond its means and thus helps its politicians evade needed budgetary discipline. In addition, America now needs significant improvement in its trade balance in order to terminate its reliance on debt-financed consumer demand and sustain recovery; this requires a substantial decline of the dollar, which the currency's role impedes. It is therefore in America's interest to promote the rise of other currencies to rival its own. The goal should be roughly to equate the international positions of the dollar and the euro over the next decade or so, and subsequently to bring the renminbi into the mix along with steady creation of special drawing rights (SDRs). The United States could also encourage other countries (notably China) to intervene in euros as well as dollars, intervene in euros itself, and discourage dollar build-ups by foreign monetary authorities through countervailing currency intervention and by taxing the income on their dollar holdings. While such changes would not resolve all the problems of the international monetary system or absolve the United States of the need to get its fiscal house in order, they would speed up needed rebalancing of the world economy and reduce the risk of future crises.
>> Read full op-ed
>>See also Wall Street Journal interview with C. Fred Bergsten
Working Paper 11-5
Integrating Reform of Financial Regulation with Reform of the International Monetary System [pdf]
Morris Goldstein
This paper links reform of the international financial regulatory system with reform of the international monetary system because as this recent global crisis demonstrates so vividly, the root causes can come from both the financial and monetary spheres and they can interact in a variety of dangerous ways. On the financial regulatory side, Morris Goldstein highlights three problems: developing a better tool kit for pricking asset-price bubbles before they get too large, shooting for national minima for regulatory bank capital that are at least twice as high as those recently agreed to as part of Basel III, and implementing a comprehensive approach to "too-big-to-fail" financial institutions that will rein in their past excessive risktaking. On the international monetary side, Goldstein emphasizes what needs to be done to discourage "beggar-thy-neighbor" exchange rate policies, including agreeing on a graduated set of penalties for countries that persistently refuse to honor their international obligations on exchange rate policy.
>> Read full working paper [pdf]
Working Paper 11-6
Capital Account Liberalization and the Role of the Renminbi [pdf]
Nicholas R. Lardy and Patrick Douglass
Despite an erosion of consensus on its benefits, capital account convertibility remains a long-term goal of China. This paper identifies three major preconditions for convertibility in China: a strong domestic banking system, relatively developed domestic financial markets, and an equilibrium exchange rate. The authors examine each of these in turn and find that, in significant respects, China does not yet meet any of the conditions necessary for convertibility. They then evaluate China's progress to date on capital account liberalization, including recent efforts to promote renminbi internationalization and greater use of the renminbi in trade settlement. The paper concludes with an overview of remaining obstacles to convertibility and policy recommendations.
Why the World Needs Three Global Currencies
C. Fred Bergsten
The dominant international role of the dollar, once considered a US privilege, has now become a burden. The dollar's dominance enables the United States to live beyond its means and thus helps its politicians evade needed budgetary discipline. In addition, America now needs significant improvement in its trade balance in order to terminate its reliance on debt-financed consumer demand and sustain recovery; this requires a substantial decline of the dollar, which the currency's role impedes. It is therefore in America's interest to promote the rise of other currencies to rival its own. The goal should be roughly to equate the international positions of the dollar and the euro over the next decade or so, and subsequently to bring the renminbi into the mix along with steady creation of special drawing rights (SDRs). The United States could also encourage other countries (notably China) to intervene in euros as well as dollars, intervene in euros itself, and discourage dollar build-ups by foreign monetary authorities through countervailing currency intervention and by taxing the income on their dollar holdings. While such changes would not resolve all the problems of the international monetary system or absolve the United States of the need to get its fiscal house in order, they would speed up needed rebalancing of the world economy and reduce the risk of future crises.
>> Read full op-ed
>>See also Wall Street Journal interview with C. Fred Bergsten
Working Paper 11-5
Integrating Reform of Financial Regulation with Reform of the International Monetary System [pdf]
Morris Goldstein
This paper links reform of the international financial regulatory system with reform of the international monetary system because as this recent global crisis demonstrates so vividly, the root causes can come from both the financial and monetary spheres and they can interact in a variety of dangerous ways. On the financial regulatory side, Morris Goldstein highlights three problems: developing a better tool kit for pricking asset-price bubbles before they get too large, shooting for national minima for regulatory bank capital that are at least twice as high as those recently agreed to as part of Basel III, and implementing a comprehensive approach to "too-big-to-fail" financial institutions that will rein in their past excessive risktaking. On the international monetary side, Goldstein emphasizes what needs to be done to discourage "beggar-thy-neighbor" exchange rate policies, including agreeing on a graduated set of penalties for countries that persistently refuse to honor their international obligations on exchange rate policy.
>> Read full working paper [pdf]
Working Paper 11-6
Capital Account Liberalization and the Role of the Renminbi [pdf]
Nicholas R. Lardy and Patrick Douglass
Despite an erosion of consensus on its benefits, capital account convertibility remains a long-term goal of China. This paper identifies three major preconditions for convertibility in China: a strong domestic banking system, relatively developed domestic financial markets, and an equilibrium exchange rate. The authors examine each of these in turn and find that, in significant respects, China does not yet meet any of the conditions necessary for convertibility. They then evaluate China's progress to date on capital account liberalization, including recent efforts to promote renminbi internationalization and greater use of the renminbi in trade settlement. The paper concludes with an overview of remaining obstacles to convertibility and policy recommendations.