Opinion | The Economist Who Foresaw Our Global Economic Order - The New York Times - 0 views
www.nytimes.com/...dollar-currency-economist.html
economist history economics policy currency single trade financial
shared by Javier E on 17 Nov 22
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Charles Kindleberger thought there should be one world currency, and he had a candidate: the U.S. dollar. He argued that there would be more trade, cross-border investment and prosperity if all nations either adopted dollars (as, say, Ecuador has) or tied their currencies to the dollar at a fixed exchange rate, which has almost the same effect.
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A multiplicity of unpredictably fluctuating currencies discourages trade and investment by injecting uncertainty into business decisions.
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He also disagreed with Friedman’s nemeses, the Keynesians, who worried that nations wouldn’t be able to fine-tune spending and taxing policy for domestic conditions if they had to keep their currencies in sync with the dollar.
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Although the United States’ share of global domestic product has shrunk since the aftermath of World War II, the dollar continues to play a dominant role in financial flows. “Around half of all cross-border bank loans and international debt securities are denominated in U.S. dollars,”
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the world today is closer to Kindleberger’s vision than he or his intellectual opponents could have imagined
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What’s more, the Federal Reserve has become in effect the world’s central bank: When the Fed raises rates aggressively, as it’s doing now, other central banks tend to follow sui
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t the British Empire really was an empire; London bankers were happy to extend loans to British companies operating in the colonies because they were subject to British law. That enabled the colonies to develop somewhat, albeit under Britain’s thumb. The United States has less control over borrowers in emerging markets. Kindleberger’s goal was “to get the economic boost of imperialism, but without the political and social downside of actual imperialism,” Mehrling wrote.
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Roosevelt worsened and extended the Depression in 1933 by torpedoing central bankers’ efforts to stabilize exchange rates between currencies.
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In contrast, Paul Volcker, who chaired the Fed from 1979 to 1987, comes across as a hero in the book for working with other central bankers and finance officials to resume international cooperation after the Nixon shock of 1971.
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There’s a concept in economics of the optimal currency area. In theory, the area of a shared currency, such as the euro, should be big enough to encompass a lot of economic activity but not so big that it includes nations that are disparate and require different economic policies. To Kindleberger, no area could be too big. He thought the whole world was an optimal currency area.
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In essence, his goal was to duplicate on the world stage what was achieved in the United States by a mentor of his, Henry Parker Willis, who was a designer of the Federal Reserve System that knitted the nation together financially.
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Kindleberger was realistic enough to observe that nationalist politics was an obstacle. “While the optimum scale of economic activity is getting larger and larger, the optimum social scale appears to be shrinking,” he once wrote. Elsewhere, he wrote: “Whereas the economic logic of the payment system pushes toward hierarchy and centralization, the political logic of subglobal and subnational groupings pushes toward autarky and pluralism.”