reserve currency

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Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

"World Economic Forum" Davos, Admiral Zheng, Alan Greenspan, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, Great Leap Forward, guns versus butter model, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, junk bonds, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low interest rates, low skilled workers, market clearing, Martin Wolf, mass immigration, Meghnad Desai, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, Savings and loan crisis, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, We are all Keynesians now, women in the workforce, working-age population, Y2K, Yom Kippur War

Arguably, then, major emerging nations have no alternative other than to challenge the dollar’s pre-eminent reserve currency role. It’s not just a case of switching out of dollars into, for example, euros. That might bring diversification benefits but it would not deal with the underlying problem, namely that the emerging economies would still be dependent on foreign currencies to conduct their international business. They need, instead, to create their own reserve currencies. They need to create the financial equivalent of the Protestant Church. CHINA’S RESERVE CURRENCY In principle, it’s a simple process. Imagine, for example, that China’s renminbi became a reserve currency, widely held around the world and used for trade and capital market transactions.

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Thus, while it’s perfectly possible to have more than one reserve currency circulating simultaneously, it has typically been a sign of weakness rather than strength. Reserve currency rivalry generally reflects unease with the international financial system, whether for economic or political reasons. Mr Putin’s comments and Beijing’s actions deserve to be taken seriously. In both the interwar years and the 1970s, the loss of trust in the prevailing reserve currency contributed to huge economic dislocations. This is hardly surprising. A reserve currency acts as a beacon of stability in an otherwise uncertain world.

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Speaking at the World Economic Forum in Davos on 28 January 2009, Vladimir Putin, prime minister of Russia, said: The entire economic growth system, where one regional centre prints money without respite and consumes material wealth, while another regional centre manufactures inexpensive goods and saves money printed by other governments, has suffered a major setback … excessive dependence on a single reserve currency is dangerous for the global economy. Consequently, it would be sensible to encourage the objective process of creating several strong reserve currencies in the future. It is high time we launched a detailed discussion of methods to facilitate a smooth and irreversible switchover to the new model … it is important that reserve currency issuers must implement more open monetary policies … these nations must pledge to abide by internationally recognized rules of macroeconomic and financial discipline.

Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies by Nik Bhatia

Alan Greenspan, bank run, basic income, Bear Stearns, bitcoin, blockchain, Bretton Woods, British Empire, central bank independence, Cornelius Vanderbilt, Credit Default Swap, cryptocurrency, distributed ledger, fiat currency, fixed income, Fractional reserve banking, interest rate derivative, interest rate swap, Isaac Newton, joint-stock company, Kickstarter, Long Term Capital Management, margin call, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, offshore financial centre, quantitative easing, reserve currency, risk free rate, Satoshi Nakamoto, slashdot, smart contracts, time value of money, tulip mania, universal basic income

When examining these two central banks that invented practically every aspect of what we today think of as central banking, it is essential to consider to what degree their monetary innovations served only to advance the agenda of their governments. These banks also gave us a look at what it meant to issue what the rest of the world considered to be its reserve currency. Central banks, world reserve currencies, and the arrival of third-layer money will be explored further in this chapter. Instant Settlement The Bank of Amsterdam (BoA) was only created thanks to the world’s first joint-stock company, the Dutch East India Company (Vereenigde Oostindische Compagnie, or VOC).

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It had absolute financial surveillance over the economy because it centrally routed all of its transactions and gained a purview into the financial relationships between its patrons.8 Demand for the BoA’s denomination grew from around Europe while Amsterdam elevated its position as the continent’s axis of capital. The guilder was considered the world reserve currency during the seventeenth century because merchants and businesses from all over Europe held it in reserve due to uncompromising trust in its issuer. Its status as world reserve currency lasted well into the eighteenth century. Privileged Lending On the Bank of Amsterdam’s agenda was more than just a subtle advance in financial settlement. A closer examination suggests that the VOC positioned itself at the top of the money pyramid in order to extract power and resources.

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The power to create money came with the responsibility, when necessary, to do whatever it took to preserve the currency denomination. The pound sterling spent the nineteenth century as the world reserve currency as other nations procured it as a savings vehicle due to the British Empire’s stature and stability. As the Empire expanded to cover half the Earth’s surface, the Bank of England faced the enormous challenge of maintaining a domestic denomination used by participants around the world. Pound sterling wouldn’t be the last currency to suffer from this conundrum. Across the Atlantic, the next world reserve currency was waiting in the wings. Chapter 4 Federal Reserve System Gold is money.

Currency Wars: The Making of the Next Gobal Crisis by James Rickards

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, bank run, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, buy and hold, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-border payments, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, deal flow, Deng Xiaoping, diversification, diversified portfolio, Dr. Strangelove, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, Great Leap Forward, guns versus butter model, high net worth, income inequality, interest rate derivative, it's over 9,000, John Meriwether, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, power law, price mechanism, price stability, private sector deleveraging, proprietary trading, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, short squeeze, sovereign wealth fund, special drawing rights, special economic zone, subprime mortgage crisis, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, vertical integration, War on Poverty, Washington Consensus, zero-sum game

After Bretton Woods, the anchor consisted of the dollar and gold, and since 1971 the anchor has consisted of the dollar as the leading reserve currency. Yet in the postwar world there has always been a reference point. Never before have multiple paper reserve currencies been used with no single anchor. Consequently, the world Eichengreen envisions is a world of reserve currencies adrift. Instead of a single central bank like the Fed abusing its privileges, it will be open season with several central banks invited to do the same at once. In that scenario, there would be no safe harbor reserve currency and markets would be more volatile and unstable. One disturbing variation on Eichengreen’s optimistic vision consists of regional currency blocs, with local dominance by the dollar, euro and yuan, and possibly the ruble in Russia’s area of influence in Eastern Europe and Central Asia.

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It can use a sovereign wealth fund to invest in stocks or other asset classes, or it can keep a portion in liquid instruments or gold. The liquid instruments can involve bonds denominated in a number of different currencies, each called a reserve currency, because countries use them to invest and diversify their reserves. Since Bretton Woods in 1944, the dollar has been by far the leading reserve currency; however, it has never been the sole reserve currency. The IMF maintains a global database showing the composition of official reserves, including U.S. dollars, euros, pounds sterling, yen and Swiss francs. Recent data show the U.S. dollar comprising just over 61 percent of identified reserves, while the next largest component, the euro, weighs in at just over 26 percent.

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The continuation of the trend toward a diminished role for the dollar in international trade and the reserve balances begs the question of what happens when the dollar is no longer dominant but is just another reserve currency among several others? What is the tipping point for dollar dominance? Is it 49 percent of total reserves, or is it when the dollar is equivalent to the next largest currency, probably the euro? Barry Eichengreen is the preeminent scholar on this topic and a leading proponent of the view that a world of multiple reserve currencies awaits. In a series of academic papers and more recent popular books and articles, Eichengreen and his collaborators have shown that the dollar’s role as the leading reserve currency did not arise suddenly in 1944 as the result of Bretton Woods, but was actually achieved as early as the mid-1920s.

What's Next?: Unconventional Wisdom on the Future of the World Economy by David Hale, Lyric Hughes Hale

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, biodiversity loss, Black Swan, Bretton Woods, business cycle, capital controls, carbon credits, carbon tax, Cass Sunstein, central bank independence, classic study, cognitive bias, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, debt deflation, declining real wages, deindustrialization, diversification, energy security, Erik Brynjolfsson, Fall of the Berlin Wall, financial engineering, financial innovation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, Glass-Steagall Act, global macro, global reserve currency, global village, high net worth, high-speed rail, Home mortgage interest deduction, housing crisis, index fund, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inverted yield curve, invisible hand, Just-in-time delivery, Kenneth Rogoff, Long Term Capital Management, low interest rates, Mahatma Gandhi, Martin Wolf, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage tax deduction, Network effects, new economy, Nicholas Carr, oil shale / tar sands, oil shock, open economy, passive investing, payday loans, peak oil, Ponzi scheme, post-oil, precautionary principle, price stability, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, risk/return, Robert Shiller, Ronald Reagan, Savings and loan crisis, sovereign wealth fund, special drawing rights, subprime mortgage crisis, technology bubble, The Great Moderation, Thomas Kuhn: the structure of scientific revolutions, Tobin tax, too big to fail, total factor productivity, trade liberalization, Tragedy of the Commons, Washington Consensus, Westphalian system, WikiLeaks, women in the workforce, yield curve

PART V RESERVE CURRENCIES 12 THE FUTURE OF THE US DOLLAR AS A RESERVE CURRENCY John Greenwood Two topics that are widely discussed in the media and among investors are the possible displacement, or even demise, of the US dollar as an international reserve currency within a few years, as well as what currency might replace it. However, in order to comment sensibly on the prospects for the international reserve role of US currency, and to answer the question about what might replace it, we first need to set out the essential characteristics of an international reserve currency. This chapter will first review the historical process by which the US dollar emerged as the preeminent international reserve currency, drawing from that experience a list of the prerequisites for reserve status.

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Most holdings of US dollars outside the United States are by private parties, and financial markets are operated largely by and for private parties, with governments and central banks taking advantage of market arrangements. If the SDR were to become a truly international currency, it would need to become a vehicle of choice by private parties. The RMB as a Potential International Reserve Currency Turning to consider future possible reserve currencies, what would have to happen for the Chinese RMB to emerge as an international reserve currency? Viewed in terms of the nine criteria for an international reserve currency, China and the RMB currently meet only five (unit of account, medium of exchange, store of value, economic size, and creditor status), while the remaining four (availability beyond home borders, full convertibility, developed financial system, and network effects) have yet to be met.

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In summary, China’s financial system will require many fundamental reforms and an extended period of development before the currency can become a serious contender for the role of international reserve currency. In order for the RMB to compete with—let alone replace—the US dollar as the world’s primary international reserve currency, it is clear that the Chinese authorities still have a long march ahead of them. Conclusion It is clear that none of the other leading currencies in the world today are in a position to replace the US dollar as an international reserve currency. On the contrary, the US dollar is likely to remain the dominant international currency for many years, both for private transactions and for official uses such as intervention and reserve currency holding.

Cryptoeconomics: Fundamental Principles of Bitcoin by Eric Voskuil, James Chiang, Amir Taaki

bank run, banks create money, bitcoin, blockchain, break the buck, cashless society, cognitive dissonance, cryptocurrency, delayed gratification, en.wikipedia.org, foreign exchange controls, Fractional reserve banking, Free Software Foundation, global reserve currency, Joseph Schumpeter, market clearing, Metcalfe’s law, Money creation, money market fund, Network effects, peer-to-peer, price stability, reserve currency, risk free rate, seigniorage, smart contracts, social graph, time value of money, Turing test, zero day, zero-sum game

The term “reserve currency ” [243] refers to a state hoard, as required for settlement [244] of accounts with other states. Money reserves of people within a state generally consist of the state’s issued money – primarily notes or fiat, with a lesser amount in coin [245] . States buy reserve currency from people using monopoly money [246] , foreign exchange controls [247] and direct taxation. Using their own money discounts purchases by the amount of seigniorage [248] . Foreign exchange controls restrict or prohibit use of the reserve currency as money. By treating the reserve currency as property but not money, the state creates a tax on the apparent capital gain [249] in the reserve money when it devalues its money [250] against the reserve money through monetary inflation [251] .

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A meaningful ban implies one or more states (the “prison”) will enforce economic sanctions [164] (at least) on other states (the “prisoners”) potentially moving to Bitcoin as a reserve currency [165] . We assume that the prisoners who may decide to use Bitcoin are trading partners. In other words its use as a reserve currency requires a partner with whom to transact . Ordinal utility [166] is implied by subjective value [167] . No outcome ties [168] are observed, implying strong dilemma. Both symmetric and asymmetric knowledge assumptions are evaluated. The outcome for individual Bitcoin (Sucker) : Economic sanction. No trading partners (using Dollar). An unusable reserve currency (no trading partners). The outcome for mutual Bitcoin (Reward) : Economic sanction.

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The outcome for mutual Bitcoin (Reward) : Economic sanction. Economic sanction of trading partner. A reserve currency not taxed via seigniorage. The outcome for individual Dollar (Temptation) : No economic sanction. Economic sanction of trading partner. A reserve currency taxed via seigniorage. The outcome for mutual Dollar (Punishment) : No economic sanction. No economic sanction of trading partner. A reserve currency taxed via seigniorage. Strong Symmetric Dilemma With Ordinal Outcome Relations Brazil\Ireland Bitcoin Dollar Bitcoin R\R S\T Dollar T\S P\P To be considered a prisoner’s dilemma T > R > P > S must be true where: T > R and P > S imply that Dollar is the dominant strategy for each.

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Dr. Strangelove, Edward Snowden, eurozone crisis, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global macro, global reserve currency, global supply chain, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Herman Kahn, high-speed rail, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, junk bonds, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, megaproject, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shale / tar sands, open economy, operational security, plutocrats, Ponzi scheme, power law, price stability, public intellectual, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, Solyndra, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

By extension, it is also about the potential collapse of the international monetary system because, if confidence in the dollar is lost, no other currency stands ready to take its place as the world’s reserve currency. The dollar is the linchpin. If it fails, the entire system fails with it, since the dollar and the system are one and the same. As fearsome a prospect as this dual collapse may be, it looks increasingly inevitable for all the reasons one will find in the pages to come. A journey to the past is in order first. Few Americans in our time recall that the dollar nearly ceased to function as the world’s reserve currency in 1978. That year the Federal Reserve dollar index declined to a distressingly low level, and the U.S.

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We call for the reform of the International Financial Institutions to make them more representative and to reflect the growing weight of BRICS. . . . We remain concerned with the slow pace of the reform of the IMF. The BRICS summit also specifically addressed the U.S. dollar’s role as the world’s leading reserve currency, and its possible replacement by SDRs: We support the reform and improvement of the international monetary system, with a broad-based international reserve currency system providing stability and certainty. We welcome the discussion about the role of the SDR in the existing international monetary system including the composition of the SDR’s basket of currencies. Finally, and so as to leave no doubt about the BRICS’ status as a political rather than an economic project, the Durban summit devoted substantial time to topics such as the crisis in Syria, a Palestinian state, Israeli settlements, Iranian nuclear weapons development, the war in Afghanistan, instability in the Congo, and other purely geopolitical issues.

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The resulting Saudi-Russian-Egyptian alliance removes another prop from under the dollar and creates a community of interest between Saudi Arabia and Russia, which had already announced its preference for an international monetary system free from dollar hegemony. For a GCC currency to become a true global reserve currency as opposed to a trade currency, further deepening of GCC financial markets and infrastructure would be needed. However, Saudi Arabia’s reevaluation of its security relations with the United States combined with the euro’s expansion and the efforts of the BRICS and the SCO to acquire gold and escape dollar dominance could presage a quite rapid diminution in the dollar’s international reserve-currency role. ■ The Island Twins Two nations stand apart from this survey of monetary multilateralism and rising discontent with the international monetary system: the U.K. and Japan.

MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them by Nouriel Roubini

"World Economic Forum" Davos, 2021 United States Capitol attack, 3D printing, 9 dash line, AI winter, AlphaGo, artificial general intelligence, asset allocation, assortative mating, autonomous vehicles, bank run, banking crisis, basic income, Bear Stearns, Big Tech, bitcoin, Bletchley Park, blockchain, Boston Dynamics, Bretton Woods, British Empire, business cycle, business process, call centre, carbon tax, Carmen Reinhart, cashless society, central bank independence, collateralized debt obligation, Computing Machinery and Intelligence, coronavirus, COVID-19, creative destruction, credit crunch, crony capitalism, cryptocurrency, currency manipulation / currency intervention, currency peg, data is the new oil, David Ricardo: comparative advantage, debt deflation, decarbonisation, deep learning, DeepMind, deglobalization, Demis Hassabis, democratizing finance, Deng Xiaoping, disintermediation, Dogecoin, Donald Trump, Elon Musk, en.wikipedia.org, energy security, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, eurozone crisis, failed state, fake news, family office, fiat currency, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, future of work, game design, geopolitical risk, George Santayana, Gini coefficient, global pandemic, global reserve currency, global supply chain, GPS: selective availability, green transition, Greensill Capital, Greenspan put, Herbert Marcuse, high-speed rail, Hyman Minsky, income inequality, inflation targeting, initial coin offering, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of movable type, Isaac Newton, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, knowledge worker, Long Term Capital Management, low interest rates, low skilled workers, low-wage service sector, M-Pesa, margin call, market bubble, Martin Wolf, mass immigration, means of production, meme stock, Michael Milken, middle-income trap, Mikhail Gorbachev, Minsky moment, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Mustafa Suleyman, Nash equilibrium, natural language processing, negative equity, Nick Bostrom, non-fungible token, non-tariff barriers, ocean acidification, oil shale / tar sands, oil shock, paradox of thrift, pets.com, Phillips curve, planetary scale, Ponzi scheme, precariat, price mechanism, price stability, public intellectual, purchasing power parity, quantitative easing, race to the bottom, Ralph Waldo Emerson, ransomware, Ray Kurzweil, regulatory arbitrage, reserve currency, reshoring, Robert Shiller, Ronald Reagan, Salesforce, Satoshi Nakamoto, Savings and loan crisis, Second Machine Age, short selling, Silicon Valley, smart contracts, South China Sea, sovereign wealth fund, Stephen Hawking, TED Talk, The Great Moderation, the payments system, Thomas L Friedman, TikTok, too big to fail, Turing test, universal basic income, War on Poverty, warehouse robotics, Washington Consensus, Watson beat the top human players on Jeopardy!, working-age population, Yogi Berra, Yom Kippur War, zero-sum game, zoonotic diseases

China is ready to substitute the dollar for the RMB and other strategic rivals of the United States—like Russia—are ready to dump dollar assets and a dollar-based reserve currency regime now that their foreign reserves and assets have been frozen. Cryptocurrency promoters are bent—if delusional—on trying to displace any fiat currency with their digital money, a near impossible goal as such cryptocurrencies lack essential features of a true currency. America’s reserve currency status won’t collapse overnight, but we will see it coming in waning US economic and geopolitical muscle around the world and increased weaponization of the US dollar for national security goals. For centuries global reserve currency status has gone hand in hand with geopolitical hegemony.

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The weaponization of the US dollar—and, after the Russian war in Ukraine, other major currencies in countries allied with the United States—via the increased use of trade and financial sanctions risks undermining the role of the US dollar as a major global reserve currency and propels an inflationary disorderly fall in its value. In the 1970s, that inflationary shock was triggered by the end of the gold-exchange standard. History will remember the trade and financial sanctions imposed by the United States and its allies against Russia—starting with the effective freezing of most of its foreign reserves—as the trigger for Russia, China, and other rivals of the West to dump the US dollar as the major global reserve currency and the creation of an alternative to it that didn’t depend on dollar accounting, dollar payments, dollar funding, and dollar store of value accumulation.

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A stable currency—in the last century the US dollar—is the anchor of that international monetary and financial system, where transactions in goods, service, capital, labor, technology, and data require a stable and accepted global reserve currency to grease international trade and globalization. That’s the theory, at least. In practice, decades of financial experimentation and innovation have created a very different reality. Unconventional central bank goals and policies spurred by the Global Financial Crisis and the COVID-19 pandemic have flooded advanced economies with unprecedented sums of liquidity. Swift and dramatic action averted recessions, but at what long-run cost? And now financial warfare risks undermining even the global reserve currency role of the US dollar, the anchor of international monetary and financial stability.

The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance by Eswar S. Prasad

access to a mobile phone, Adam Neumann (WeWork), Airbnb, algorithmic trading, altcoin, bank run, barriers to entry, Bear Stearns, Ben Bernanke: helicopter money, Bernie Madoff, Big Tech, bitcoin, Bitcoin Ponzi scheme, Bletchley Park, blockchain, Bretton Woods, business intelligence, buy and hold, capital controls, carbon footprint, cashless society, central bank independence, cloud computing, coronavirus, COVID-19, Credit Default Swap, cross-border payments, cryptocurrency, deglobalization, democratizing finance, disintermediation, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, Elon Musk, Ethereum, ethereum blockchain, eurozone crisis, fault tolerance, fiat currency, financial engineering, financial independence, financial innovation, financial intermediation, Flash crash, floating exchange rates, full employment, gamification, gig economy, Glass-Steagall Act, global reserve currency, index fund, inflation targeting, informal economy, information asymmetry, initial coin offering, Internet Archive, Jeff Bezos, Kenneth Rogoff, Kickstarter, light touch regulation, liquidity trap, litecoin, lockdown, loose coupling, low interest rates, Lyft, M-Pesa, machine readable, Mark Zuckerberg, Masayoshi Son, mobile money, Money creation, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, offshore financial centre, open economy, opioid epidemic / opioid crisis, PalmPilot, passive investing, payday loans, peer-to-peer, peer-to-peer lending, Peter Thiel, Ponzi scheme, price anchoring, profit motive, QR code, quantitative easing, quantum cryptography, RAND corporation, random walk, Real Time Gross Settlement, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, risk/return, Robinhood: mobile stock trading app, robo advisor, Ross Ulbricht, Salesforce, Satoshi Nakamoto, seigniorage, Sheryl Sandberg, Silicon Valley, Silicon Valley startup, smart contracts, SoftBank, special drawing rights, the payments system, too big to fail, transaction costs, uber lyft, unbanked and underbanked, underbanked, Vision Fund, Vitalik Buterin, Wayback Machine, WeWork, wikimedia commons, Y Combinator, zero-sum game

The US institutional framework might have taken some body blows, but there is no rival that can match the combination of economic, financial, and institutional strength that anchors the dollar’s dominance. While reserve currencies might not be challenged as stores of value, digital versions of extant reserve currencies and improved cross-border transaction channels could intensify competition between reserve currencies themselves. In short, the finance-related technological developments that are underway or on the horizon portend some changes in domestic and international financial markets, but a revolution in the international monetary system is not quite in the cards for the foreseeable future.

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Moreover, it is a stretch to suggest that such stablecoins would represent alternative stores of value. Indeed, the allure of stablecoins is precisely that their value is tightly linked to existing reserve currencies in which savers and investors around the world are willing to place their trust. In short, the emergence of stablecoins linked to existing reserve currencies will reduce direct demand for those currencies for international payments but will not in any fundamental way transform the relative balance of power among the major reserve currencies. A Synthetic Global Digital Currency At the Jackson Hole conference of central bankers in August 2019, Mark Carney, then the governor of the Bank of England, gave a luncheon speech that spanned a broad expanse of policy issues.

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National currencies issued by their central banks could lose ground to private stablecoins and perhaps also to CBDCs issued by the major economies. Even among the major reserve currencies, there are some shifts in store. The US dollar could lose some ground as a payment currency, although it will remain dominant both in this dimension and as a store of value. A digital renminbi will help the currency gain traction as a payment currency, but the digitization of the currency by itself will do little to boost its status as a reserve currency. The renminbi’s further rise, even if gradual and modest, and the emergence of additional stablecoins could reduce the importance of the second-tier reserve currencies, including the euro, the British pound sterling, the Japanese yen, and the Swiss franc.

Crisis Economics: A Crash Course in the Future of Finance by Nouriel Roubini, Stephen Mihm

Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, central bank independence, centralized clearinghouse, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, dark matter, David Ricardo: comparative advantage, debt deflation, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, Glass-Steagall Act, global pandemic, global reserve currency, Gordon Gekko, Greenspan put, Growth in a Time of Debt, housing crisis, Hyman Minsky, information asymmetry, interest rate swap, invisible hand, Joseph Schumpeter, junk bonds, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market bubble, market fundamentalism, Martin Wolf, means of production, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, Northern Rock, offshore financial centre, oil shock, Paradox of Choice, paradox of thrift, Paul Samuelson, Ponzi scheme, price stability, principal–agent problem, private sector deleveraging, proprietary trading, pushing on a string, quantitative easing, quantitative trading / quantitative finance, race to the bottom, random walk, regulatory arbitrage, reserve currency, risk tolerance, Robert Shiller, Satyajit Das, Savings and loan crisis, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, subprime mortgage crisis, Suez crisis 1956, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, too big to fail, tulip mania, Tyler Cowen, unorthodox policies, value at risk, We are all Keynesians now, Works Progress Administration, yield curve, Yom Kippur War

It ran a current account surplus, and the dollar served as the international reserve currency. Under the famed Bretton Woods agreement, signed shortly before the end of World War II, other nations made their currencies convertible into dollars at certain fixed rates, and the United States pledged to convert those same dollars into gold. Most economists of the day—particularly American economists—thought Bretton Woods was a good idea, but Robert Triffin, a Belgian-born economist, begged to differ. In 1960 he spoke against the idea of having one nation’s currency simultaneously serve as an international reserve currency. Such an arrangement, he warned, contained the seeds of its own destruction.

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Such an arrangement, he warned, contained the seeds of its own destruction. Triffin observed that nations that issue reserve currencies—Britain in the nineteenth century, the United States in the twentieth—generally maintain current account surpluses. In the case of the United States, that meant that more dollars flowed into the country than flowed out. So far, so good. But other countries, Triffin pointed out, would need to hold the reserve currency. The resulting demand for dollars would create a countervailing force, causing dollars to flow out of the United States. Those pressures, Triffin argued, would eventually create a current account deficit, which would eventually undercut the economic standing of the United States and, by extension, the dollar.

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This may seem like a small matter, but it’s not: at present, much invoicing in international trade uses the dollar as the “unit of account,” even when the trade doesn’t involve the United States. This deference—similar to the respect accorded the pound sterling a century ago—reflects the dollar’s real and symbolic status as the international reserve currency. If the yuan gains widespread acceptance in the world’s account books, the dollar will see its reserve-currency status usurped. For now, however, the renminbi faces an uphill battle to become the world’s premier currency. Even the Chinese may not want it to happen too quickly. The exchange rate would have to become more flexible, allowing the renminbi to appreciate far more than it has already, and making China’s exports less affordable to other countries.

The Einstein of Money: The Life and Timeless Financial Wisdom of Benjamin Graham by Joe Carlen

Abraham Maslow, Albert Einstein, asset allocation, Bernie Madoff, book value, Bretton Woods, business cycle, business intelligence, discounted cash flows, Eugene Fama: efficient market hypothesis, full employment, index card, index fund, intangible asset, invisible hand, Isaac Newton, John Bogle, laissez-faire capitalism, margin call, means of production, Norman Mailer, oil shock, post-industrial society, price anchoring, price stability, reserve currency, Robert Shiller, the scientific method, Vanguard fund, young professional

However, as late as 1965 (eleven years prior to his death), Graham remained convinced that his plan was still preferable to the status quo or any of the other currency schemes that had been proposed since: “If ever expert world opinion should become ready for a new and improved formulation of sound money, my idea might be accepted as the best of its kind.”76 While “expert world opinion” has yet to accept Graham's plan as “the best of its kind,” it has resurfaced in some interesting places since his passing in 1976. COMMODITY-RESERVE CURRENCY: AN IDEA AHEAD OF ITS TIME? In a 1989 New York Times piece titled “The Volatile Dollar: The Floating Dollar Needs an Anchor,” the Boston-based economist David Ranson makes a strong argument for Graham's commodity-reserve currency in the face of the “high price”77 that the United States has paid for “the instability of the dollar.”78 However, Ranson makes no mention of Graham or either of the late writer's books on the subject.

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Allen, a Harvard MBA graduate who once worked with Sir James Wolfensohn (chairman of the World Bank from 1995 to 2005), actually described Benjamin Graham as one of “history's most eminent economists.”82 Citing the governor of the Central Bank of China's recent advocacy of a new reserve currency “disconnected from individual nations”83 and “able to remain stable in the long run,”84 Allen told his illustrious LSE audience that “these were the same thoughts put forth by Benjamin Graham in his book World Commodities and World Currencies in 1944.”85 Certainly, if such an international currency is ever implemented (due to China's insistence or any other reason) and modeled after the ideas detailed in his writings, Graham's 1965 prediction that future generations would remember him best for his commodity-reserve currency plan may be proven correct after all.

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However, as impressive as these examples are, they compose a surprisingly incomplete reflection of the intellectual powerhouse that was Benjamin Graham. Perhaps this is best illustrated with an example supplied by Graham himself: writing in 1957, he stated that “if my name has any chance of being remembered by future generations…it will be as inventor of the commodity reserve currency plan.”10 This was not false modesty about his contributions to investment finance; from his perspective at that time, this seemed quite plausible. After all, how many noneconomists (Graham had no formal training in economics) in the 1930s and 1940s developed economic proposals that were seriously considered not only by the Roosevelt administration but also by economic theorists the stature of John Maynard Keynes and Friedrich Hayek?

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

"World Economic Forum" Davos, Airbnb, Alan Greenspan, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, Charles Babbage, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Elisha Otis, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, global reserve currency, high net worth, initial coin offering, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, low interest rates, market bubble, market clearing, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, quantum cryptography, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, scientific management, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, We are all Keynesians now, zero-sum game

Even as central banks repeatedly declared the end of gold's monetary role, their actions in maintaining their gold reserves ring truer. From a monetary competition perspective, keeping gold reserves is a perfectly rational decision. Keeping reserves in foreign governments' easy money only will cause the value of the country's currency to devalue along with the reserve currencies, while the seniorage accrues to the issuer of the reserve currency, not the nation's central bank. Further, should central banks sell all their gold holdings (estimated at around 20% of global gold stockpiles), the most likely impact is that gold, being highly prized for its industrial and aesthetic uses, would be bought up very quickly with little depreciation of its price and the central banks would be left without any gold reserves.

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If Bitcoin continues to grow in value and gets utilized by a growing number of financial institutions, it will become a reserve currency for a new form of central bank. These central banks could be primarily based in the digital or physical worlds, but it is becoming worth considering if national central banks should supplement their reserves with Bitcoin. In the current monetary global system, national central banks hold reserves mainly in U.S. dollars, euros, British pounds, IMF Standard Drawing Rights, and gold. These reserve currencies are used to settle accounts between central banks and to defend the market value of their local currencies.

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First, governments and banks were always creating media of exchange beyond the quantity of gold in their reserves. Second, many countries used not just gold in their reserves, but also currencies of other countries. Britain, as the global superpower at that time, had benefited from having its money used as a reserve currency all around the world, resulting in its reserves of gold being a tiny fraction of its outstanding money supply. With growing international trade relying on settlement of large quantities of money across the world, the Bank of England's banknotes became, in the minds of many at the time, “as good as gold.”

Grave New World: The End of Globalization, the Return of History by Stephen D. King

"World Economic Forum" Davos, 9 dash line, Admiral Zheng, air freight, Alan Greenspan, Albert Einstein, Asian financial crisis, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Sanders, bilateral investment treaty, bitcoin, blockchain, Bonfire of the Vanities, borderless world, Bretton Woods, Brexit referendum, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collateralized debt obligation, colonial rule, corporate governance, credit crunch, currency manipulation / currency intervention, currency peg, currency risk, David Ricardo: comparative advantage, debt deflation, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Snowden, eurozone crisis, facts on the ground, failed state, Fall of the Berlin Wall, falling living standards, floating exchange rates, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, global value chain, Global Witness, Great Leap Forward, hydraulic fracturing, Hyman Minsky, imperial preference, income inequality, income per capita, incomplete markets, inflation targeting, information asymmetry, Internet of things, invisible hand, Jeremy Corbyn, joint-stock company, Kickstarter, Long Term Capital Management, low interest rates, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, middle-income trap, moral hazard, Nixon shock, offshore financial centre, oil shock, old age dependency ratio, paradox of thrift, Peace of Westphalia, plutocrats, post-truth, price stability, profit maximization, quantitative easing, race to the bottom, rent-seeking, reserve currency, reshoring, rising living standards, Ronald Reagan, Savings and loan crisis, Scramble for Africa, Second Machine Age, Skype, South China Sea, special drawing rights, technology bubble, The Great Moderation, The Market for Lemons, the market place, The Rise and Fall of American Growth, trade liberalization, trade route, Washington Consensus, WikiLeaks, Yom Kippur War, zero-sum game

Put another way, the smaller the US economy relative to the rest of the world, the less reliable the US dollar is likely to be as the world’s premier reserve currency. The Nixon Shock may only be a foretaste of future currency upheavals. Those upheavals, in turn, may reflect an increase in competitive currency clipping. With the formation of the euro and the rise of the Chinese renminbi, the world appears to be entering a new phase in which the US dollar faces competition for reserve currency status. Yet if reserve currency status enables the issuing country to more easily escape from a debt trap, the number of countries and regions attempting to engineer reserve currency status will only increase. Meanwhile, those already with reserve currency status will more easily lose the trust of everyone else.

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Meanwhile, those already with reserve currency status will more easily lose the trust of everyone else. As reserve currencies proliferate, so more countries will want to claim that it’s ‘our currency, your problem’. Under those circumstances, however, it is difficult to see how globalization can easily progress. At best, we may end up with a series of regional currency blocs dominated by the US dollar, the euro and the renminbi. At worst, we could end up with a chaotic ever-changing constellation of currencies challenging globalization on three separate fronts: first, the desire for individual countries to deflect their debt problem somewhere else; second, the American economy’s diminishing status on the world stage; and third, the absence of a global financial imperium to replace the US.

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While it could block the actions of others, it was equally possible that the others could block Washington’s own initiatives: after all, enough smaller countries could form their own ‘superminority’ in order to veto decisions that might otherwise have gone through.5 And over time, US influence has diminished: in 2016, the US vote share had dropped to around 16 per cent. Nevertheless, the principles established in the IMF’s early days still very much applied at the beginning of the twenty-first century: in particular, it was still better to be a creditor than a debtor (unless, like the US, you happened to be the issuer of the world’s principal reserve currency). THE RED MENACE AND THE DEEP POCKETS Despite the best of intentions, the IMF and the World Bank simply did not have the financial firepower to deliver a sustainable post-war settlement. In particular, the IMF’s job was to manage only temporary balance of payments distortions, specifically to keep the financial wheels of world trade well oiled.

Making Globalization Work by Joseph E. Stiglitz

"World Economic Forum" Davos, affirmative action, Alan Greenspan, Andrei Shleifer, Asian financial crisis, banking crisis, barriers to entry, benefit corporation, Berlin Wall, blood diamond, business process, capital controls, carbon tax, central bank independence, corporate governance, corporate social responsibility, currency manipulation / currency intervention, Doha Development Round, Exxon Valdez, Fall of the Berlin Wall, Firefox, full employment, Garrett Hardin, Gini coefficient, global reserve currency, Global Witness, Great Leap Forward, Gunnar Myrdal, happiness index / gross national happiness, illegal immigration, income inequality, income per capita, incomplete markets, Indoor air pollution, informal economy, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), inventory management, invisible hand, John Markoff, Jones Act, Kenneth Arrow, Kenneth Rogoff, low interest rates, low skilled workers, manufacturing employment, market fundamentalism, Martin Wolf, microcredit, moral hazard, negative emissions, new economy, North Sea oil, offshore financial centre, oil rush, open borders, open economy, price stability, profit maximization, purchasing power parity, quantitative trading / quantitative finance, race to the bottom, reserve currency, rising living standards, risk tolerance, Seymour Hersh, Silicon Valley, special drawing rights, statistical model, the market place, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, Tragedy of the Commons, trickle-down economics, union organizing, Washington Consensus, zero-sum game

Because each country is holding global greenbacks in its reserves, each no longer has to hold (as many) dollars or euros as reserves. For the global economy, this has enormous consequences, both for the former (current) reserve currency countries and for the global economy. We noted earlier the self-destructive logic of the current system, where the reserve currency country becomes increasingly in debt, to the point at which its money no longer serves as a good reserve currency. This is the process that is currently in play with the dollar. Because the global reserve system would no longer rely on the growing debt of a single country—the basic contradiction of the current system, which makes instability almost inevitable—global stability would be enhanced.

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It is able and, especially since 2000, willing to run huge deficits. There is a seeming unending appetite for reserve country bonds, and it is all too easy for governments of reserve currency countries to get more and more into debt to feed this appetite. The fact that others are willing to lend at a low interest rate creates a situation politicians find hard to resist. It is easy to run fiscal deficits, to spend more than one has. Since the dollar became the major reserve currency, the United States has twice—in 1981 and 2001—financed huge tax cuts through deficits. This helps to explain our peculiar observation earlier—that the United States is the world’s richest country, yet is living beyond its means.

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Without America’s profligacy, the fears of a weak global economy, possibly so weak that prices might actually start to fall—the fears of deflation that surfaced in the early years of this century, and which have plagued Japan for a decade—might have been realized.12 The question is, for how long can America continue to provide this service; that is, can it continue its spending spree? And are there alternative, more equitable ways of avoiding the global downward bias? Insufficiency of aggregate demand in the reserve currency country We have seen how the global reserve system leads to a problem of inadequacy of global aggregate demand. It also presents a special problem of inadequate aggregate demand in the reserve currency country. A country whose currency is being used as a reserve must—if it is to continue to be used as a reserve—“sell” its currency (or more accurately, its T-bills or bonds) to other countries, who hold on to them.13 When a country sells a T-bill to another country, it is, of course, simply borrowing from that country.

The Road to Ruin: The Global Elites' Secret Plan for the Next Financial Crisis by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Bayesian statistics, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Benoit Mandelbrot, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, blockchain, Boeing 747, Bonfire of the Vanities, Bretton Woods, Brexit referendum, British Empire, business cycle, butterfly effect, buy and hold, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, cellular automata, cognitive bias, cognitive dissonance, complexity theory, Corn Laws, corporate governance, creative destruction, Credit Default Swap, cuban missile crisis, currency manipulation / currency intervention, currency peg, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, disintermediation, distributed ledger, diversification, diversified portfolio, driverless car, Edward Lorenz: Chaos theory, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, fiat currency, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, Fractional reserve banking, G4S, George Akerlof, Glass-Steagall Act, global macro, global reserve currency, high net worth, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Isaac Newton, jitney, John Meriwether, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, large denomination, liquidity trap, Long Term Capital Management, low interest rates, machine readable, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, Minsky moment, Money creation, money market fund, mutually assured destruction, Myron Scholes, Naomi Klein, nuclear winter, obamacare, offshore financial centre, operational security, Paul Samuelson, Peace of Westphalia, Phillips curve, Pierre-Simon Laplace, plutocrats, prediction markets, price anchoring, price stability, proprietary trading, public intellectual, quantitative easing, RAND corporation, random walk, reserve currency, RFID, risk free rate, risk-adjusted returns, Robert Solow, Ronald Reagan, Savings and loan crisis, Silicon Valley, sovereign wealth fund, special drawing rights, stock buybacks, stocks for the long run, tech billionaire, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transfer pricing, value at risk, Washington Consensus, We are all Keynesians now, Westphalian system

One interesting property of the SDR is that it solves Triffin’s dilemma. This economic conundrum was posed by Belgian economist Robert Triffin in testimony to the U.S. Congress in 1960. Triffin observed that the issuer of a global reserve currency had to run persistent deficits to supply the world with sufficient reserves for normal trade. Yet a nation that runs deficits long enough goes broke. In this context, going broke means trading partners lose confidence in the stable value of the reserve currency and reject it in favor of alternatives. SDRs solve this problem because the issuer, the IMF, is not a country and does not run deficits. There is no confidence boundary on the amount of SDRs issued.

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Another step on the road to world money was a November 2015 decision by the IMF executive board to include the Chinese yuan as a reference currency in the SDR basket. The other currencies are dollars, euros, yen, and sterling. This decision was purely political. The yuan did not meet the criteria for a true reserve currency and is unlikely to meet them for at least a decade. A reserve currency requires a deep, liquid sovereign bond market, with hedging instruments, repo financing, settlement and clearing facilities, and a good rule of law. China has none of these. Without bond market infrastructure, reserve holders have little to invest in. Still, the political symbolism of the IMF’s yuan decision is important.

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The article states: Investment in global public goods—namely, the infrastructure needed to meet the needs of the developing world and to mitigate climate change—could spur global reflation. An estimated $6 trillion in infrastructure investment will be needed annually over the next 15 years just to address global warming. … With the US, the issuer of the world’s preeminent reserve currency, unwilling or unable to provide the liquidity needed to close the infrastructure investment gap, a new supplementary reserve currency should be instituted—one whose issuer does not have to confront the Triffin dilemma. This leaves one option: the International Monetary Fund’s Special Drawing Right. … An incremental expansion of the SDR’s role in the new global financial architecture, aimed at making the monetary-policy transmission mechanism more effective, can be achieved without major disagreement.

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

"World Economic Forum" Davos, Alan Greenspan, algorithmic trading, asset-backed security, bank run, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, collateralized debt obligation, computer age, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial engineering, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, Glass-Steagall Act, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, junk bonds, Kenneth Rogoff, large denomination, Long Term Capital Management, low interest rates, market bubble, Martin Wolf, Menlo Park, Michael Milken, military-industrial complex, Minsky moment, mobile money, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, plutocrats, Ponzi scheme, profit maximization, prosperity theology / prosperity gospel / gospel of success, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, shareholder value, short selling, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Chicago School, Thomas Malthus, too big to fail, trade route

The United States, although it had become the world’s principal creditor nation after World War I, had yet to establish the dollar as the world’s reserve currency. Britain, meanwhile, was clearly a faded global military and political hegemon, but through 1931 sterling remained the leading and most trusted currency. Neither nation fit the role of lender of last resort—the United States didn’t want to be, and Britain didn’t have the wherewithal. As 2008 ended, kindred warning flags flew. China was the leading creditor nation, with huge currency reserves. The United States was the weakening principal power that still printed the accepted reserve currency. The crux was whether the United States, having become the world’s principal debtor nation, could afford to provoke its global creditors with its biggest ever round of massive budget deficits and monetary expansion.

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That was soon unsustainable—the British economy of 1949, pallid and stressed, was still implementing wartime food rationing, and the government was forced to devalue to a humbler $2.80 exchange rate. So much for a onetime reserve currency. Thirty-five years had passed since the early warnings of 1914, not too different from Americans in 2008 harking back thirty-seven years to when a Vietnam-wearied United States closed the gold convertibility window for foreign central banks. My point is that the dollar crisis has been taking shape for many years. Any abandonment of the greenback as the world’s reserve currency could hardly occur “overnight.” Unfortunately, a second yardstick is also relevant, one that the pound did not have to confront back in the first half of the twentieth century—the semiofficial link between U.S. currency and a strategic energy commodity.

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Nevertheless, former Federal Reserve chairman Alan Greenspan told the German magazine Stern that although the dollar is still ahead of the euro, “it doesn’t have all that much of an advantage” anymore, so the euro could replace the dollar as the reserve currency of choice. More to the point was the nature of dollar wobbliness in a June 2007 survey conducted among central bank currency reserve managers by UBS, the Swiss bank. Only 47 percent expected the dollar still to be the most important reserve currency in twenty-five years, whereas 23 percent expected an Asian currency, 21 percent opted for the euro, and 8 percent chose gold.55 Perhaps the euro and an Asia-wide currency together could push the dollar down to 40 percent of central bank reserves by 2025; the euro would be hard-pressed to do so alone.

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny

Albert Einstein, AOL-Time Warner, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bear Stearns, Bernie Madoff, Black Swan, bond market vigilante , book value, Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, commodity super cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, equity risk premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, global macro, Greenspan put, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, inverted yield curve, invisible hand, junk bonds, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, market microstructure, Minsky moment, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, proprietary trading, purchasing power parity, quantitative easing, random walk, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, SoftBank, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, tail risk, The Great Moderation, Thomas Bayes, time value of money, too big to fail, Tragedy of the Commons, transaction costs, two and twenty, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

But it is very plain to me that the politicians and the central bankers will at this stage do more or less whatever it takes to avoid that collapse happening now, under their watch. They will not let nebulous long-term economic consequences get in the way. What are your thoughts on the status of the dollar as the world’s reserve currency? The dollar is certainly challenged, and will remain so for a number of reasons. A better longer-term solution for the world is probably more than one reserve currency. But unless the U.S. really mismanages things from here, the dollar will remain the world’s number one reserve currency 5 and 10 years down the road. It just might not enjoy such a wide margin of dominance in the future. Is this current bailout going to create the mother of all moral hazards?

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If U.S. demand remains stagnant for several years, this could drive a destabilizing deflationary impulse, considering how fast lending growth and debt has been over the past year. China also presents a clear challenge to the U.S. dollar as the world’s reserve currency for the first time since World War II. Although the Chinese renminbi will not become the sole reserve currency, it will become a major tradable currency and could eventually become an important part of a world reserve currency basket. A clear concern is the structural flaw in the global monetary system, whereby the U.S. deficit is everyone else’s surplus. As such, everyone else is simply wed to the level of U.S. debt and implicitly to the U.S. economy’s growth rate.

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And, by selling oceanfront, you own an implicit call on global warming! Obviously, and unfortunately, this is not a trade that you can really put on, although it does suggest renting oceanfront rather than buying until prices adjust. What about the U.S. dollar—is the dollar’s status as the world’s reserve currency on the wane? The idea that the dollar’s reserve currency status is disappearing is something I used to believe in, but now I am not so sure. In order for that to happen, the public sector would have to begin dumping its dollars, or at least no longer accumulate dollars. If the underlying U.S. trade deficit has fallen, then the public sector will likely be accumulating fewer dollars.

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

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Over the next ten to twenty years we will see a larger Eurozone that will provide an alternative reserve currency to the dollar.”12 Triffin’s Dilemma and the Dollar A reckoning long foreseen is at hand. “Nearly 50 years ago, Yale University economist Robert Triffin identified the inevitable future deterioration of the dollar in his book, Gold and the Dollar Crisis: The Future of Convertibility (1960),” wrote researcher Walker Todd in a December 2008 article. “Essentially, Triffin argued, under the Bretton Woods system in which the U.S. dollar was the world’s principal reserve currency (instead of gold, for example), the United States had to incur large trade deficits in order to provide the rest of the world with the liquidity required for the functioning of the global trading system.”13 Returning to the point with respect to the soaring cost of imported energy, the fact that the dollar continues to trade at current levels versus other currencies reflects the reality that as the global means of exchange, the dollar cannot be easily replaced.

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Thus dealing with the role of the dollar in the global economy ultimately is linked to fiscal and political reform in the United States. Conventional wisdom says that there is no way out of the current situation of having the dollar as the global reserve currency. A study published in June 2010 by the Council on Foreign Relations quoted Luo Ping, a director-general at the China Banking Regulatory Commission, on the issue of the reserve currency status of the dollar: Except for U.S. Treasuries, what can you hold? Gold? You don’t hold Japanese government bonds or United Kingdom bonds. U.S. Treasuries are the safe haven. For everyone, including China, it is the only option. . . .

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As part of this new international financial order, the world would gradually but deliberately replace the dollar as the sole international reserve currency and include at least two other currencies, the euro and the Chinese yuan. These currencies would gradually take a larger and larger share of international financial and commercial flows, and force the United States to manage its fiscal and monetary policies in a more responsible fashion. Instead of the dollar as the sole means of exchange for global commerce, there would now be three large reserve currency blocs built around Europe, North America, and Asia that would essentially compete in terms of encouraging growth and maintaining fiscal discipline.

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

Alan Greenspan, banking crisis, banks create money, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency risk, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, Glass-Steagall Act, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, junk bonds, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Michael Milken, mobile money, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nixon triggered the end of the Bretton Woods system, Paul Volcker talking about ATMs, Ponzi scheme, profit motive, proprietary trading, prudent man rule, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, Savings and loan crisis, seigniorage, shareholder value, Silicon Valley, SoftBank, Solyndra, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

America only briefly joined the gold standard, but instead pursued a liberal (as in loose) domestic credit system based on fractional reserve banking, and until 1913 eschewed the discipline of central banking. Britain accepted and even clung to the burden of maintaining a reserve currency until forced to impose strict exchange controls at the outbreak of war in 1939 largely through its governing class’s confusion between national prestige and practical economics. After the war, the “temporary” exchange controls stayed on until 1979. Sterling’s role as a reserve currency was unsustainable. The dollar became by default the only potential reserve currency after the war, but the remarkable fact is that by the 1944 Bretton Woods conference, the United States had been the largest economy in the world for about 65 years without taking up the burden of financial hegemon.

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The key weakness in the Bretton Woods system was that it required monetary discipline on the part of the United States, whose dollar was in effect the new gold, the anchor for all other currencies.The United Kingdom understood its role as issuer of the global reserve currency and played it well until it could no longer afford it. The US government was and is inevitably driven by domestic politics to put its reserve currency obligations in second place at best. The simple fact was (and remains) that the US government could print money without limit if it chose to, and in the 1970s it did so with a vengeance to finance a vast expansion of social spending and the Vietnam War without raising taxes.

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Nobody has a bigger stake in the global financial system. But will it take up the role of its hegemon? It is in fact likely that China, despite being the world’s largest exporter and creditor, will for some time at least contrive to avoid the role of hegemon, especially the burden of reserve currency issuer and lender of last resort. Reserve currencies, with the pound sterling as the most successful to date, become a global benchmark and safe haven that drives up their value relative to other currencies, which in many circumstances damages export competitiveness. Japan, the very model of an export-driven economy, remains the world’s largest creditor, with overseas assets of nearly $7 trillion.

Every Nation for Itself: Winners and Losers in a G-Zero World by Ian Bremmer

airport security, banking crisis, barriers to entry, Berlin Wall, blood diamond, Bretton Woods, BRICs, capital controls, clean water, creative destruction, Deng Xiaoping, Doha Development Round, energy security, European colonialism, failed state, global rebalancing, global supply chain, Global Witness, income inequality, informal economy, information security, Intergovernmental Panel on Climate Change (IPCC), Julian Assange, Kickstarter, Martin Wolf, mass immigration, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, Nelson Mandela, Nixon shock, Nixon triggered the end of the Bretton Woods system, no-fly zone, nuclear winter, Parag Khanna, purchasing power parity, reserve currency, Ronald Reagan, smart grid, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, trade route, uranium enrichment, Washington Consensus, WikiLeaks, Yom Kippur War

A number of emerging powers have begun to insist in recent years that the dollar’s singular status provides Washington with a privilege it no longer deserves and that America’s mounting debt ensures that the dollar is no longer a stable enough store of value to serve as the world’s dominant reserve currency. “They [the United States] are living like parasites off the global economy and their monopoly of the dollar,” said Vladimir Putin in 2011. “There should be other reserve currencies.” In 2011, as federal debt climbed toward 75 percent of U.S. gross domestic product, critics at home and abroad questioned the willingness of Washington’s feuding lawmakers to pay the country’s bills and the long-term impact of the country’s political stalemate on the value of the dollar.

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But the greenback has maintained its decades-long incumbency in part because there has never been a viable single alternative to it. During the Cold War, the shadow of Soviet tanks undermined long-term confidence in West Germany’s deutschmark, and Japan avoided pushing the yen as a reserve currency to keep tighter control of its value. The euro has become an alternative reserve currency in limited quantities, but recent debt crises in Eurozone countries have undermined confidence that the single European currency is here to stay. China has taken concrete steps in recent years to advance the yuan as an international currency, but next steps would force a degree of foreign involvement in Chinese markets and a transparency in Chinese policymaking that will be hard for risk-averse Chinese officials to accept anytime soon.

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For example, Britain helped keep the peace by working to maintain a balance of force among the great powers of Europe. It promoted an increasingly open world economy, in part by using its unparalleled naval power to protect international sea lanes. It enabled capital flows and maintained the gold standard. The British pound served as the world’s primary reserve currency. The rise of Germany and the United States in the late nineteenth century began to undermine Britain’s dominance, and the breakdown of Europe’s concert of nations gave way to the First World War. But it was World War II that permanently crippled Britain’s ability to continue in this role. The United States, which suffered much less damage from the two conflicts than its enemies or its allies, proved ready, willing, and able to take on global leadership.

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, Goodhart's law, Greenspan put, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, junk bonds, Kenneth Rogoff, Kickstarter, labour market flexibility, Les Trente Glorieuses, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market clearing, Martin Wolf, Minsky moment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, Suez crisis 1956, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

The European crisis has shown that government bonds are not the risk-free asset that they had been assumed to be. OPTIONS FOR CHANGE So how might the system change? Much of the discussion concerns whether the US dollar will be replaced as the global reserve currency by the Chinese renminbi, or whether it will simply be one of a range of reserve currencies including the euro, renminbi and yen. The global reserve currency is the currency that forms the biggest proportion of the holdings of central banks. More broadly, however, it is also the one most likely to be accepted by merchants in other countries; if you are a tourist in Africa, you will be better off trying to buy goods with dollars than pounds or yen.

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As of 2010, 60 per cent of all foreign exchange reserves were denominated in dollars, giving the US currency a critical mass.3 Investors are still comfortable with holding it; at times of crisis, the dollar is regarded as a safe haven despite the country’s fiscal problems. After all, sterling was still being used as a reserve currency in the mid-twentieth century long after Britain’s relative economic decline had become apparent. The choice of reserve currency involves many factors. The US’s political, military and economic pre-eminence have undoubtedly boosted the dollar’s status. But it is also important that investors, and other central banks, can easily realize their dollar holdings if they have to – in other words, that the US market is highly liquid.

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And it will take even longer for international investors to become confident that a Communist-led government will always respect their rights. Even if the dollar steadily falls in value against the renminbi, as seems likely, it will still have attractions as a reserve currency. Indeed, currency depreciation goes with the territory of being a reserve currency. In a sense, this dates back to the Triffin dilemma outlined in Chapter 5: for a currency to be used internationally there must be lots of it circulating abroad. For that to happen, however, a country must run a deficit so its currency builds up in the accounts of overseas merchants.

Endless Money: The Moral Hazards of Socialism by William Baker, Addison Wiggin

Alan Greenspan, Andy Kessler, asset allocation, backtesting, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Madoff, Black Swan, bond market vigilante , book value, Branko Milanovic, bread and circuses, break the buck, Bretton Woods, BRICs, business climate, business cycle, capital asset pricing model, carbon tax, commoditize, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crony capitalism, cuban missile crisis, currency manipulation / currency intervention, debt deflation, Elliott wave, en.wikipedia.org, Fall of the Berlin Wall, feminist movement, fiat currency, fixed income, floating exchange rates, foreign exchange controls, Fractional reserve banking, full employment, German hyperinflation, Great Leap Forward, housing crisis, income inequality, index fund, inflation targeting, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, land bank, land reform, liquidity trap, Long Term Capital Management, lost cosmonauts, low interest rates, McMansion, mega-rich, military-industrial complex, Money creation, money market fund, moral hazard, mortgage tax deduction, naked short selling, negative equity, offshore financial centre, Ponzi scheme, price stability, proprietary trading, pushing on a string, quantitative easing, RAND corporation, rent control, rent stabilization, reserve currency, risk free rate, riskless arbitrage, Ronald Reagan, Savings and loan crisis, school vouchers, seigniorage, short selling, Silicon Valley, six sigma, statistical arbitrage, statistical model, Steve Jobs, stocks for the long run, Tax Reform Act of 1986, The Great Moderation, the scientific method, time value of money, too big to fail, Two Sigma, upwardly mobile, War on Poverty, Yogi Berra, young professional

Once you start issuing $1 trillion to $2 trillion . . . we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.” Who benefits? Like Germany of the 1930s, the United States does, because being the operator of the world’s reserve currency, even if the creditor nations pull out of the dollar or other perhaps equally inflated paper currencies, it can make one last withdrawal of seigniorage from its money supply by monetizing it. But the cost would be the loss of operating the world reserve currency. Gao Xiqing continues, “‘If China has $2 trillion, Japan has almost $2 trillion, and Russia has some, and all the others, then—let’s throw away the ideological differences and think about what’s good for everyone.’

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A key feature of that variant of the gold standard was the recruitment of major trading partners to substitute English pounds or U.S. dollars for their central bank reserves, 40 ENDLESS MONEY depending upon which currency or trading block in which they operated. From the perspective of the operator of the reserve currency, this simultaneously discouraged citizens from demanding gold in return for dollars, and it injected a cumbersome intermediate step before foreign currencies might be subject to the discipline of redemption. It also allowed British and U.S. banks to inflate and build up trade imbalances without fear of immediate settlement.

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Yet losses then are estimated at only 2 percent, far less than the inflation to which the government subjected the people once the Act was legislated and the need to finance the Civil War became pressing.33 By 1903 the weakened state of silver globally provided the perfect opportunity for Britain and the United States to approach friendly countries with an opportunity to base their national currencies upon the pound or the dollar, respectively, which were grounded upon gold and could serve as a reserve base underneath foreign money supplies instead of silver. Seigniorage as well as control over financial affairs would accrue to the issuer of the reserve currency, the United States or Britain, and their client states would be subservient. The idea was to replace a genuine gold standard, in which each country (or, domestically, each bank) maintains its reserves in gold, by a pseudo-gold standard in which the central bank of the client country maintains its reserves in some key or base currency, say pounds or dollars . . . during the 1920s, most countries 56 ENDLESS MONEY maintained their reserves in pounds, and only Britain purported to redeem pounds in gold.

The Global Minotaur by Yanis Varoufakis, Paul Mason

active measures, Alan Greenspan, AOL-Time Warner, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business climate, business cycle, capital controls, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, declining real wages, deindustrialization, Easter island, endogenous growth, eurozone crisis, financial engineering, financial innovation, first-past-the-post, full employment, Glass-Steagall Act, Great Leap Forward, guns versus butter model, Hyman Minsky, industrial robot, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market fundamentalism, Mexican peso crisis / tequila crisis, military-industrial complex, Money creation, money market fund, mortgage debt, Myron Scholes, negative equity, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, Paul Samuelson, planetary scale, post-oil, price stability, quantitative easing, reserve currency, rising living standards, Ronald Reagan, special economic zone, Steve Jobs, structural adjustment programs, Suez crisis 1956, systematic trading, too big to fail, trickle-down economics, urban renewal, War on Poverty, WikiLeaks, Yom Kippur War

According to what Connally told reporters, what he said to the Europeans was mild and affable: We told them that we were here as a nation that had given much of our resources and our material resources and otherwise to the World to the point where frankly we were now running a deficit and have been for twenty years and it had drained our reserves and drained our resources to the point where we could no longer do it and frankly we were in trouble and we were coming to our friends to ask for help as they have so many times in the past come to us to ask for help when they were in trouble. That is in essence what we told them. His real message is still ringing in European ears: It’s our currency but it’s your problem! What Connally meant was that, as the dollar was the reserve currency (i.e. the only truly global means of exchange), the end of Bretton Woods was not America’s problem. The Global Plan was, of course, designed and implemented to be in the interests of the United States. But once the pressures on it (caused by Vietnam and internal US tensions that required an increase in domestic government spending) became such that the system reached breaking point, the greatest loser would not be the United States, but Europe and Japan – the two economic zones that had benefited most from the Global Plan.

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In contrast, the tribute of capital that fed the Global Minotaur flooded into the United States voluntarily. Why? How did US policy makers persuade capitalists from all over the world to fund the superpower’s twin deficits? What was in it for them? The answer turns on four factors. To stick to the mythological narrative, let’s call them the Minotaur’s charismas. The Minotaur’s four charismas Reserve currency status While the Global Plan lasted, it did not matter much which currency one held, since the exchange rates against the dollar were more or less fixed and the exchange rate between the dollar and gold was welded at $35 to an ounce of the gleaming metal. Nevertheless, oil magnates, German industrialists, French winemakers and Japanese bankers preferred to store their cash in dollars simply because of capital controls – that is, restrictions on how much cash one could convert to dollars or other currencies at any one time.

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Increasing energy prices damaged the relative competitiveness of Germany and Japan vis-à-vis the United States. Moreover, the oil trade was intimately linked to US multinationals, and thus the higher oil prices meant a larger revenue base for them, higher profits, and a strengthening of their capacity to diversify internationally. As for non-US producers, the dollar’s reserve currency status, coupled with Volcker’s huge interest rates, magnetized their petrol dollars to New York where they metamorphosed into shares or US government bonds. Interestingly, it was not long before Japanese and German industry reacted to the shock by taking innovative paths that transformed their industrial production in ways that clawed back some of the relative gains that the United States had snatched from them by making energy so expensive.

Birth of the Euro by Otmar Issing

accounting loophole / creative accounting, behavioural economics, Bretton Woods, business climate, business cycle, capital controls, central bank independence, currency peg, currency risk, financial innovation, floating exchange rates, full employment, inflation targeting, information asymmetry, labour market flexibility, labour mobility, low interest rates, market fundamentalism, money market fund, moral hazard, oil shock, open economy, price anchoring, price stability, purchasing power parity, reserve currency, Robert Solow, Y2K, yield curve

In this reserve currency role, the euro in practical terms initially superseded the D-Mark, which over time had become the second most important reserve currency after the US dollar. The D-Mark had come to play this role when the US dollar exchange rate weakened appreciably in the 1970s and a growing number of central banks sought an alternative to dollar investments. Meanwhile, the euro is playing an increasing part in the diversification of foreign exchange reserves by many central banks. The euro is – albeit a long way behind the US dollar – the world’s second most important reserve currency. Table 6 shows the euro’s share in the official foreign exchange reserves of various groups of countries.

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Current account balances and cumulated ULC (percentage points; percentages of GDP; percentages) 172 173 209 210 211 212 215 216 Tables 1. Conversion rates 2. Key characteristics of the euro area 3. Per capita GDP in purchasing power standards relative to the euro area average 4. Annual change in the Harmonised Index of Consumer Prices (in %) 5. The euro as an international currency 6. Official foreign exchange reserves: currency shares 7. Countries with exchange rate regimes linked to the euro 8. Three-group rotation system (second stage); voting frequencies of governors in each group ix 20 44 46 142 179 180 182 225 Preface The date 1 January 1999 marks a milestone in monetary history. Eleven national currencies – not least among them the D-Mark, held in such high esteem by the citizens of Germany – ceased to exist.

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In reality, the market rate is in most cases allowed to fluctuate within certain bounds. This does not alter the principle of the central bank’s obligation to intervene. The same considerations apply if the currency is linked to a metal (such as under the gold standard) or the price of a basket of commodities (commodity-reserve currency). 170 • The ECB – monetary policy for a stable euro If, in contrast, the market is left to determine the exchange rate, and the central bank therefore has no obligation to intervene, it can in principle direct its policy measures towards fulfilling a domestic mandate. Only with a flexible (floating) exchange rate is the central bank able to achieve a domestic objective (generally speaking, the objective of price stability).32 The choice of exchange rate regime is of central importance for monetary policy and also for the place of the central bank in the macroeconomic policy framework.

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, Alan Greenspan, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, full employment, Glass-Steagall Act, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, Les Trente Glorieuses, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, proprietary trading, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, vertical integration, very high income, winner-take-all economy, zero-sum game

The most radical suggestion is the creation of a global reserve asset. The idea was recently presented by a panel of experts commissioned by the UN Secretary General: [T]he idea of an international reserve currency issued by a supranational bank is not new. It was broached more than seventy-five years ago by John Maynard Keynes in his 1930 Treatise on Money, and refined in his Bretton Woods proposals for an International Clearing Union. There currently exist a number of alternative proposals for a new global reserve currency, for how the system might be administered, how the emissions of the new currency might be allocated, and how the transition to the new system might be managed.

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Yet it is far from clear that the US benefits from being the supplier of the reserve currency. On the contrary, the evidence from the recent crisis is that the consequences for financial stability in the US are highly adverse. It seems likely that the Chinese government will have that view of a comparable role for the renminbi. It surely should do so. Maybe, the possibility of a transition to the kind of monetary regime Keynes envisaged may now emerge. It is at least clear that the world of floating fiat currencies, one of which is a reserve currency, is highly unstable. The experience already forced a drastic shift in the policies of emerging and developing countries after 1997, as this book has noted (see Chapter Five).

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During the crisis, the finance they depended upon dried up. This was another ‘sudden stop’, very much the same as those that afflicted Ireland and southern Europe at that time. For investors, flight to safety is almost always also a rush back home, except if the economy to which the capital previously flowed is the home of a reserve, or near-reserve, currency, and possesses triple-A or close to triple-A status as a sovereign borrower (such as the US). The countries of Central and Eastern Europe did not possess those attributes. So the money took flight, whereupon these countries were forced to retrench suddenly and brutally. The result was deep recessions, with few exceptions.

When China Rules the World: The End of the Western World and the Rise of the Middle Kingdom by Martin Jacques

Admiral Zheng, An Inconvenient Truth, Asian financial crisis, Bear Stearns, Berlin Wall, Bob Geldof, Bretton Woods, BRICs, British Empire, classic study, credit crunch, Dava Sobel, deindustrialization, Deng Xiaoping, deskilling, discovery of the americas, Doha Development Round, energy security, European colonialism, failed state, Fall of the Berlin Wall, flying shuttle, Francis Fukuyama: the end of history, global reserve currency, global supply chain, Great Leap Forward, illegal immigration, income per capita, invention of gunpowder, James Watt: steam engine, joint-stock company, Kenneth Rogoff, land reform, land tenure, lateral thinking, Malacca Straits, Martin Wolf, Meghnad Desai, Naomi Klein, Nelson Mandela, new economy, New Urbanism, one-China policy, open economy, Pearl River Delta, pension reform, price stability, purchasing power parity, reserve currency, rising living standards, Ronald Reagan, Scramble for Africa, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, spinning jenny, Spread Networks laid a new fibre optics cable between New York and Chicago, the scientific method, Thomas L Friedman, trade liberalization, urban planning, Washington Consensus, Westphalian system, Xiaogang Anhui farmers, zero-sum game

As a harbinger of the decline, and ultimate demise, of the present US-DOMINATED system, there is the prospect of the emergence over the next decade of the renminbi as a reserve currency, which would mean it could be used for trade and be held by countries as part of their reserves.180 Having acquired full convertibility against other currencies, it could rapidly assume a very important role outside China, acting as the de facto reserve currency in East Asia, marginalizing the yen, and challenging the position of the euro and ultimately the dollar as global reserve currencies.181 It is clear from the American financial meltdown in 2008 that the days when the US economy could sustain the global reserve currency are now numbered. The present international system is designed primarily to represent and promote American interests.

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In that eventuality, and assuming the dollar declines, the renminbi will increasingly be used for trading purposes, other countries in the region will peg their currencies to it, and in time it will surely assume the role of the reserve currency of choice in the region.57 It is worth noting that in the zones around China’s borders - Myanmar, Mongolia, Laos, Cambodia and Vietnam - the renminbi, though not yet convertible, is already traded freely and used as a de facto reserve currency, sometimes instead of theUSdollar.58 Not surprisingly, China’s rapidly developing economic influence in the region is having wider political and cultural repercussions.59 Everywhere, in varying degrees, the impact of China can be felt.

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Given that China is likely to be the main trading partner of every East Asian nation, it will be natural for trade to be conducted in the renminbi, for the value of their currencies to be fixed against it rather than the dollar, which is largely the case now, and for the renminbi to be used as the reserve currency of choice. As the dollar continues to weaken with the relative decline of the US economy and the emergence of developing countries like China and India, it will steadily lose its global pre-eminence, to be replaced by a basket of currencies, with power initially being shared by the dollar and the euro, and perhaps the yen.50 When the renminbi is made fully convertible, it is likely to become one of the three major reserve currencies, along with the dollar and the euro, and in time will replace the dollar as the world’s major currency.

Big Debt Crises by Ray Dalio

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Bear Stearns, Ben Bernanke: helicopter money, break the buck, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital controls, central bank independence, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, declining real wages, equity risk premium, European colonialism, fiat currency, financial engineering, financial innovation, foreign exchange controls, German hyperinflation, global macro, housing crisis, implied volatility, intangible asset, it's over 9,000, junk bonds, Kickstarter, land bank, large denomination, low interest rates, manufacturing employment, margin call, market bubble, market fundamentalism, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Northern Rock, Ponzi scheme, price stability, private sector deleveraging, purchasing power parity, pushing on a string, quantitative easing, refrigerator car, reserve currency, risk free rate, Savings and loan crisis, short selling, short squeeze, sovereign wealth fund, subprime mortgage crisis, too big to fail, transaction costs, universal basic income, uptick rule, value at risk, yield curve

If you are interested in reviewing actual case studies showing the reasons why inflationary depressions happen rather than deflationary ones, it is worth noting the differences between the Weimar case study and the US Great Depression and 2007–2011 case studies, which are also examined in Part 2. Can reserve-currency countries that don’t have significant foreign-currency debt have inflationary depressions? While they are much less likely to have inflationary contractions that are as severe, they can have inflationary depressions, though they emerge more slowly and later in the deleveraging process, after a sustained and repeated overuse of stimulation to reverse deflationary deleveraging. Any country, including one with a reserve currency, can experience some movement out of its currency, which changes the severity of the trade-off between inflation and growth described earlier.

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Any country, including one with a reserve currency, can experience some movement out of its currency, which changes the severity of the trade-off between inflation and growth described earlier. If a reserve-currency country permits much higher inflation in order to keep growth stronger by printing lots of money, it can further undermine demand for its currency, erode its reserve currency status (e.g., make investors view it as less of a store hold of wealth), and turn its deleveraging into an inflationary one. The Phases of the Classic Inflationary Debt Cycle Classically, inflationary deleveragings follow the ebbs and flows of money and credit through five stages that mirror the stages of deflationary deleveragings, but that are different in important ways.

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For example, for a country that has become reliant on borrowing from external creditors, the pulling back of lending due to exogenous causes will lead to liquidity tightening. A tightening of monetary policy in the currency in which debts are denominated can be enough to cause foreign capital to pull back. This can happen for reasons unrelated to conditions in the domestic economy (e.g., cyclical conditions in a reserve currency country leads to a tightening in liquidity in that currency, or a financial crisis results in a pullback of capital, etc.). Also, a rise in the currency the debt is in relative to the currency incomes are in can cause an especially severe squeeze. Sometimes unanticipated shortfalls in cash flows due to any number of reasons can trigger the debt crises.

Green Economics: An Introduction to Theory, Policy and Practice by Molly Scott Cato

Albert Einstein, back-to-the-land, banking crisis, banks create money, basic income, Bretton Woods, Buy land – they’re not making it any more, carbon footprint, carbon tax, central bank independence, clean water, Community Supported Agriculture, congestion charging, corporate social responsibility, David Ricardo: comparative advantage, degrowth, deskilling, energy security, food miles, Food sovereignty, Fractional reserve banking, full employment, gender pay gap, green new deal, income inequality, informal economy, intentional community, Intergovernmental Panel on Climate Change (IPCC), job satisfaction, land bank, land reform, land value tax, Mahatma Gandhi, market fundamentalism, Money creation, mortgage debt, Multi Fibre Arrangement, passive income, peak oil, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, reserve currency, Rupert Read, seminal paper, the built environment, The Spirit Level, Tobin tax, tontine, University of East Anglia, wikimedia commons

In a democratic age one would expect money, created in official currencies as part of a national or supranational money supply backed by governments, to be created by professionally independent central monetary authorities (like the European Central Bank) and given to governments or international government agencies to spend into circulation on public purposes.7 Money and global injustice While at the national level the consequences of the existing money system are focused on the way it generates private and public debt, its instability, and the way it creates a squeeze on the social aspects of the economy, in an international context green economists criticize the money system for its role in stimulating conflict and creating massive inequality between nations. The international financial system is complex and closely interrelated with the system of global trade. The relationship revolves around the system of reserve currencies – the dollar, euro, yen and pound sterling – which countries are prepared to accept from one another, or from third countries outside the charmed circle, in settlement of external trade balances.8 This system clearly gives the countries that control these currencies a huge advantage in trade terms, especially the US, which negotiated that its currency should have the supreme advantage of being acceptable alongside gold as the international reserve asset during the Bretton Woods negotiations that established this system at the end of the Second World War.

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It provides a fascinating example of how a currency issued by people for their own use and without support of any reserves, can provide a means of facilitating exchange and, in fact, of underpinning a whole economy. Conclusion Green economists have shown a strong interest in all aspects of monetary reform, from concern for the way a reserve currency system creates geopolitical instability and global poverty, to a critical stance on the distorting and inefficient nature of national money creation. Many of the most prominent green economists have also been involved as pioneers of their own local currency systems. In conclusion it is worth mentioning the ongoing division within green economics concerning the focus of effort in the arena of monetary reform.

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All workers in sectors exposed to international competition may therefore see their wages fall as markets open up, but those most exposed will fare the worst.3 More fundamentally, trade means the exchange of goods in the medium of money, and that money is not, as economic theory assumes, a neutral medium. Rather, because of the way the countries controlling reserve currencies have a disproportionate amount of power in the world economy (for more on how this works see Chapter 5), they are able to run huge trade deficits, effectively importing goods for next-to-nothing: Allowing the free market to determine the price of surplus goods offered to corporate monopoly buyers based in powerful industrial nations, produced by underdeveloped nations, carrying massive debts, under pressure to export – this is bound to lead to low prices.

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Asian financial crisis, banks create money, Bretton Woods, British Empire, business cycle, capital controls, Charles Lindbergh, currency manipulation / currency intervention, currency peg, deindustrialization, European colonialism, facts on the ground, fiat currency, financial independence, floating exchange rates, full employment, global reserve currency, imperial preference, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Rogoff, lateral thinking, low interest rates, margin call, means of production, Michael Milken, money: store of value / unit of account / medium of exchange, Monroe Doctrine, New Journalism, Nixon triggered the end of the Bretton Woods system, open economy, Paul Samuelson, Potemkin village, price mechanism, price stability, psychological pricing, public intellectual, reserve currency, road to serfdom, seigniorage, South China Sea, special drawing rights, Suez canal 1869, Suez crisis 1956, The Great Moderation, the market place, trade liberalization, Works Progress Administration

Hu noted, however, that the undesirable global repercussions of Fed actions derived from flaws in “the current international currency system,” which was a “product of the past.”36 Governor Zhou, for his part, went further in explicitly recalling Triffin, whose analysis had suggested that no manner of American goodwill or prudence could rectify this fundamental problem. Zhou called for a wholesale remaking of the international monetary system. “The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history,” Zhou observed. But issuers of reserve currencies “cannot pursue different domestic and international objectives at the same time”; this is the heart of the Triffin critique of Bretton Woods. “Although crisis may not necessarily be an intended result of the issuing authorities,” he argued, “it is an inevitable outcome of the institutional flaws.”

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“The collapse of the Bretton Woods system, which was based on the White approach,” he concluded, “indicates that the Keynesian approach may have been more farsighted.” He called on the IMF to take the lead in boosting the all-but-forgotten SDR—to make it into a true “super-sovereign reserve currency,” using the model of Keynes’s bancor.37 Xinhua, after blasting the United States for its “debt addiction” in 2011, repeated Zhou’s call for a “new, stable, and secured global reserve currency.”38 China, though a huge creditor of the United States, is, unlike the United States in the 1940s, in no position to orchestrate a Bretton Woods–type refashioning of the global monetary architecture.

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The key insight, he held, was that the very existence of money at the heart of the economy wreaked havoc with the self-stabilizing mechanisms that classical economists believed to be at constant work. Keynes would apply his insight in the design of a new global monetary architecture, built around a new international reserve currency—one that would be a threat to the global supremacy of the U.S. dollar and which White was determined to keep from seeing the light of day. His visionary monetary schemes notwithstanding, Keynes had ultimately come to the United States with the mission of conserving what he could of bankrupt Britain’s historic imperial prerogatives—what little room for maneuver it would be allowed in what seemed sure to be a dollar-dominated postwar world.

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

Affordable Care Act / Obamacare, Alan Greenspan, American ideology, bank run, banking crisis, Bear Stearns, Bernie Madoff, business cycle, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, Greenspan put, high net worth, housing crisis, inverted yield curve, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, open immigration, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, subprime mortgage crisis, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, Tyler Cowen, yield curve, zero-sum game

Second, there were housing bubbles created by the central banks in a number of other countries (such as Ireland and Spain), and these bubbles also burst. Finally, and most important, the U.S. dollar is the world’s reserve currency. If the Fed makes a mistake, its error will be transmitted to the global economy. The Fed increased the world’s monetary reserves, creating a global financial bubble. It is surprising to me, given the Fed’s string of errors, that international players have not abandoned the dollar and moved to a different standard. Of course, the Chinese have threatened to do just this. (Also, it can be argued that gold is rapidly becoming the world’s reserve currency.) It was previously outlined how subdivision zoning laws played an important role in driving up residential land site values and contributed to the housing bubble.

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As was discussed earlier, the gold standard was falsely accused of being a major contributor to the Great Depression. The benefit of the gold standard is that it limits the ability of politicians and government bureaucrats to debase the value of the dollar. After World War II, the U.S. dollar became the reserve currency of the world and foreign governments could ask the United States to convert dollars to gold. Under Lyndon Johnson, the Fed printed so many dollars that the U.S. Treasury did not have enough gold to make the dollar-to-gold conversion. For this reason, Richard Nixon completely decoupled the dollar from gold in 1971.

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Of course, politicians had found other ways to cheat, but, at least, with a gold standard debasing the currency was harder. We have been running a high-risk experiment since 1971 by relying on government bureaucrats to self discipline. The problems with the euro reflect the risk in this experiment. Should the U.S. dollar lose its status as the world’s reserve currency, the consequences would be severe. The Fed’s radical expansion of the money supply in reaction to the recent financial crisis is a form of Russian roulette. It may work but is very risky. It is noteworthy that most liberal economists treat the advocates of the gold standard without any respect.

End the Fed by Ron Paul

affirmative action, Alan Greenspan, Bear Stearns, Bernie Madoff, Bernie Sanders, Bretton Woods, business cycle, crony capitalism, currency manipulation / currency intervention, fiat currency, Fractional reserve banking, guns versus butter model, hiring and firing, housing crisis, illegal immigration, invisible hand, Khyber Pass, Long Term Capital Management, low interest rates, market bubble, means of production, military-industrial complex, Money creation, moral hazard, Ponzi scheme, price mechanism, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, too big to fail, tulip mania, We are all Keynesians now, Y2K

And, of course, the best prediction of the Austrian economists was the breakdown of the Bretton Woods Agreement, and that certainly told us something about what to expect in the 1970s. But the concerns from that school of thought would be that we still are inflating. Between 1995 and 1999, our M3 money supply went up 41 percent. It increased during that period of time twice as fast as the GDP, contributing to this condition that we have. We have had benefits as a reserve currency of the world, which allows us to perpetuate the bubble, the financial bubble. Because of our huge current account deficit, we are now borrowing more than a billion dollars a day to finance, you know, our prosperity, and most economists, whether they are from the Austrian school or not, would accept the notion that this is unsustainable and something would have to happen.

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We can create credit and money out of thin air and it acts as capital by stealing value from the existing currency. We’ve been doing that for a long time, so the process can continue but it literally is the inflation. Also, we can resort to borrowing overseas and we are permitted because we have the reserve currency of the world to export our inflation and that seems to be a free ride for us as well. But, how long can we fool the world? How long can we continue with a current account deficit of 6 percent if our productive jobs are going overseas? And, like the gentleman mentioned before about more jobs going overseas, eventually, this is going to catch up with us.

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Just as Henry Hazlitt and other Austrian economists knew, in 1944, when the Bretton Woods system was established, that it would not last, many others knew from the beginning that the current system started on April 15, 1971, would also fail. The date may not have been known, but its demise was predictable. The current crisis, started in 2007 with the break in the housing mortgage market, is now in full swing and signifies the end of the fiat dollar reserve currency system. It is impossible to understand the current crisis without understanding the international monetary system, which has been dominated by our Federal Reserve. The core of the contemporary problem dates from 2001 when the Fed attempted to forestall recession through low interest rates. Actual interest rates fell well below historical averages and any monetary rule that the Fed claimed to be following. 2 Greenspan slashed the federal funds target from 6.5 percent in January 2001 down to 1 percent by June 2003.

Does Capitalism Have a Future? by Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derluguian, Craig Calhoun, Stephen Hoye, Audible Studios

affirmative action, blood diamond, Bretton Woods, BRICs, British Empire, business cycle, butterfly effect, company town, creative destruction, deindustrialization, demographic transition, Deng Xiaoping, discovery of the americas, distributed generation, Dr. Strangelove, eurozone crisis, fiat currency, financial engineering, full employment, gentrification, Gini coefficient, global village, hydraulic fracturing, income inequality, Isaac Newton, job automation, joint-stock company, Joseph Schumpeter, junk bonds, land tenure, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, loose coupling, low skilled workers, market bubble, market fundamentalism, mass immigration, means of production, mega-rich, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, offshore financial centre, oil shale / tar sands, Ponzi scheme, postindustrial economy, reserve currency, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, Suez crisis 1956, too big to fail, transaction costs, vertical integration, Washington Consensus, WikiLeaks

It then remained virtually static from 1970 to 2005 as the United States successfully exploited the advantages of having the dollar as the reserve currency of the world. A relative decline has occurred since then, largely a product of the higher growth of India and China, but the dollar remains almighty, America can still borrow unlimited cash at an interest rate of lower than 2%, and in most years it still outperforms Europe and Japan in economic productivity and growth. The IMF and Barry Eichengreen have both guessed that the dollar will remain as the world’s reserve currency until some date soon after 2020. The United States also has 48% of the world’s military expenditure, its highest-ever percentage, and it retains its dominance over patents, Nobel prizes, elite universities, and popular culture.

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This actually reduces, not increases, the possibilities of the endless accumulation of capital, and intensifies rather than counteracts the structural crisis of the world-system. Furthermore, the austerity measures now so widespread are reducing the customer base for the exports of the BRICS. The most likely financial result of the economic turmoil will be the final eviction of the United States dollar as the world’s reserve currency, followed not by another currency performing this function, but a multicurrency world that allows for the constant fluctuations of exchange rates, a further inducement to the freezing of the financing of new productive activity. Meanwhile, and simultaneously, the decline of US hegemony became irreparable after the blowback caused by the political-military fiasco of the neocon program of unilateral military machismo undertaken in the period 2001–2006 by the administration of President George W.

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The Habsburgs and France were the leading powers at this time in Europe, but the continent (and its empires) had essentially multipower geopolitics. Britain was more dominant in the 19th century, for it was the leading industrial capitalist power with the biggest navy, the biggest empire, and for a time the reserve currency, but it was never hegemonic over the continent of Europe and it relied on a balance of power between other states to protect itself. Wallerstein then sees a period of rivalry between two potential hegemons, Germany and the United States, before the latter triumphed. He describes the period 1914 to 1945 as a “thirty years war” between the two, an odd description for wars into which America only entered tardily, and only when attacked by Japan in the second war.

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

3D printing, Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Glass-Steagall Act, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, market bubble, market clearing, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, subprime mortgage crisis, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

Governments also had control over their own money supply as long as their trade deficits were not so large as to cause a run on their currency and a likely devaluation. Britain tried to maintain its status as a victorious Allied power and retained sterling as a reserve currency, but within 25 years of 1945 sterling had to be devalued twice. Only the dollar was the true reserve currency. The shelter of a fixed exchange rate, control over their own money supply, and the relaxed attitude about budget deficits and public debt allowed Western economies to have 25 years of steady growth with only a few shallow recessions. Inflation was a problem but until the end of the 1960s it was mainly a domestic problem which different countries dealt with in their own way.

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The US agreed to buy and sell gold at $35 an ounce, as the Bank of England had done before World War I (at £3 17s 10½d). But gold was not to circulate domestically, nor would citizens be allowed to present gold bullion for coinage. It was decided to have a system of fixed exchange rates, with the dollar as the reserve currency. All currencies had to declare and defend a fixed parity with the dollar. The International Monetary Fund was established to police the working of the fixed exchange rate standard. The IMF was allowed to give loans to countries in temporary balance-of-payments difficulty, but only if they promised to correct the imbalance by suitable deflation, or, in extreme cases, devaluation.

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(i) Clayton Act (i) Clinton Administration (i) closed economy (i), (ii), (iii), (iv), (v), (vi) Cobb, Charles (i) Cobb-Douglas Production Function (i), (ii) coincidence, vs.causation (i) Cold War (i) collateralized debt obligations (CDO) (i) colonization (i) Combinations (trade unions), as harmful (i) Committee on the Bank of England Charter (i) commodity markets price rises (i) regulation (i) Common Market (i) communications, advances in (i), (ii) companies, collapse of (i) comparative advantage (i) compatibility microeconomics/macroeconomics (i), (ii), (iii) unique static equilibrium/moving data (i) competition and efficiency (i) imperfect (i) theory of (Marshall) (i) computer technology development of (i), (ii); see also technological innovations stock markets (i) confidence, rise and fall (i) conflicting interests (i), (ii) Connally, John (i) consols (i) consumer credit (i) consumption function (i), (ii) contagion (i), (ii) control of money supply (i) convertibility (i) cooperation (i) correlation/coincidence, vs. causation (i) corruption (i) Countrywide Financial (i) Cournot, Antoine Augustin (i) Cowles, Alfred (i) Cowles Foundation (i) creative destruction (i) credit business dependence (i) cheap (i) as driver of investment (i) credit cards (i) credit default swaps (CDS) (i) crises beginnings of (i) developing countries (i) Juglar’s theory (i) Mexican (i) proliferation (i) as recurrent (i), (ii) as regular occurrences (i) ten year pattern (i) unpredictability (i) crisis of 1825 (i) crisis of profitability (i) Crosland, Anthony (i) The Future of Socialism (i) currency, convertibility (i) depreciation (i) pegging (i), (ii) cycles (i) banking system as root (i) combinations of (i) Goodwin (i), (ii) Juglar’s study (i) Keynes on (i) long (i) loss of interest in (i) Marx’s theories (i), (ii) measuring (i) origins (i) random events (i) reproduction by Keynesian models (i) rocking horse analogy (i) short (i) Wicksell’s theory (i) see also Frisch; Kondratieff cycles debit cards (i) Debreu, Gerard (i), (ii) debt crises (i) easy availability (i) levels (i) see also government debt debt-fueled boom (i) debts brokers (i) farmers’ (i) post-World War II (i) purchase of (i) decisions, patterns (i) deficits, endemic (i) deflation (i) deindustrialization (i), (ii) Deism (i) demand, factors in (i) demographics (i) demutualization (i) depreciation (i) advocacy of (i) Ricardo’s theory (i) value of goods (i) deregulation, banking (i) derivatives (i), (ii) Deserted Village, The (Oliver Goldsmith) (i) deutschmark (i) developing countries, Wicksellian boom (i) disequilibrium dynamic (i), (ii), (iii), (iv) stock (i) system, capitalism as (i) tradition (i) displacement effect, technological innovations (i) division of knowledge (i) division of labor (i), (ii) dollar purchasing power (i) as reserve currency (i), (ii) dollar exchange standard (i), (ii) dot.com boom (i) double deficits (i) Douglas, Paul (i), (ii) Dow Jones (i) Duménil, Gerard (i) durable goods (i) Dutch Disease (i) dynamic stochastic general equilibrium (DSGE) models (i), (ii) econometric modeling (i), (ii) Econometric Society (i), (ii) econometrics (i), (ii) economic activity, shift (i) economic analysis, applicability (i) economic cycles (i) Marx/Engels (i) see also Kondratieff cycles economic data, proliferation (i) economic growth, problems of (i) economic policy, activism (i) economic sectors, conflicting interests (i), (ii) economic slump, post-World War I (i) economic stagnation (i) economic theory (i) and individual lives (i) economic trajectories (i) economic vocabulary (i), (ii), (iii) economics background to (i) celebrated (i) changing scope of (i) as dismal science (i) professionalization (i) teaching of (i) “Economics and Knowledge” (Hayek) (i) economies, interconnections (i) economies of scale (i) economists, research methods (i) economy changing nature of (i) equilibrium/disequilibrium (i) visions of (i) efficiency, use of term (i) efficient market hypothesis (EMH) (i), (ii), (iii) Eisenhower, Dwight D.

The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony by David G. W. Birch

"World Economic Forum" Davos, Alan Greenspan, algorithmic management, AlphaGo, bank run, Big Tech, bitcoin, blockchain, Bretton Woods, BRICs, British Empire, business cycle, capital controls, cashless society, central bank independence, COVID-19, cross-border payments, cryptocurrency, Diane Coyle, disintermediation, distributed ledger, Donald Trump, driverless car, Elon Musk, Ethereum, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, global reserve currency, global supply chain, global village, Hyman Minsky, information security, initial coin offering, Internet of things, Jaron Lanier, Kenneth Rogoff, knowledge economy, M-Pesa, Mark Zuckerberg, market clearing, market design, Marshall McLuhan, mobile money, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, new economy, Northern Rock, one-China policy, Overton Window, PalmPilot, pattern recognition, Pingit, QR code, quantum cryptography, race to the bottom, railway mania, ransomware, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social distancing, sovereign wealth fund, special drawing rights, subscription business, the payments system, too big to fail, transaction costs, Vitalik Buterin, Washington Consensus

Cohen draws attention to this because the dollar’s role as prime currency, as global hegemonic currency, brings (as is well known) substantial benefits to the American economy and substantial support to American foreign policy. The fundamental exorbitant privilege is measurable and substantial. As Robert Kaplan, president of the Federal Reserve Bank of Dallas, said, thinking about cryptocurrency and digital currencies reinforces the view that ‘the dollar may not be the world’s reserve currency forever, and if that changes, and you tack on 100 basis points to $20 trillion … [that is] $200 billion a year and all of a sudden we’ve got a tremendous problem’ (Keoun 2019). As top dog, the United States earns significant ‘seigniorage ’ on its currency. The Treasury prints more $100 bills than dollar bills, and there are now more than seven billion pictures of Benjamin Franklin in circulation.

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The problem he is alluding to is that the US dollar’s global electronic hegemony ‘made sense after World War II, when the [United States] accounted for 28% of global exports’. Now, however, that figure is 8.8%, according to the IMF. ‘Yet the dollar still dominates international trade’ (Michaels and Vigna 2019). This means demand for the US dollar and dollar-denominated instruments remains artificially high, so the dollar is still the world’s reserve currency, even though the United States’s share of global GDP has approximately halved in the last 60 years (figure 9). Figure 9. United States’s share of global GDP. The US dollar is involved in around 9 in 10 FX trades (compared with around 1 in 25 for China’s renminbi), and BIS figures show that non-US banks hold some $12 trillion in dollar assets (of which China accounts for a trillion) that must be funded with dollar liabilities.

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As former American Treasury secretary Jack Lew explained to an audience in Washington (US Department of the Treasury 2016): The risk that sanctions overreach will ultimately drive business activity from the US financial system could become more acute if alternatives to the United States as a center of financial activity, and to the US dollar as the world’s preeminent reserve currency, assume a larger role in the global financial system. Lew went on to point out that it is hard to change an IMFS overnight, and there are no current alternatives to the US dollar (or US markets). This does not mean the dollar’s Prime role should be taken for granted; America ‘should not be surprised’ that countries are looking to avoid the United States because of sanctions.

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

Alan Greenspan, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, business cycle, buy and hold, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop - Herbert Stein's Law, index fund, junk bonds, Lao Tzu, low interest rates, margin call, market bubble, McMansion, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, National Debt Clock, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

Not so with the United States. Since the end of World War II, the U.S. dollar has been the reserve currency of the world. Just as central banks including our own once held gold and issued their currencies as a marker for gold, under the Bretton Woods agreement, foreign central banks have held U.S. dollars against which they issue their own currencies. Despite the abrogation of the U.S. promise of dollar /gold redeemability, the dollar standard has persisted. Almost two thirds of foreign currency reserves are held in dollars. As the world’s leading reserve currency, the advantages for the United States are several. This dollar standard results in greater market demand for dollars and therefore a higher exchange rate than would otherwise exist.

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Conventional investments have been the place to be in the recent past: stocks from 1982 to 2000; real estate boomed as the authorities engineered a loose credit environment to cushion the consequences of their prior bubble popping; the dot-com market. But gold’s recent advances signal that we are in a period of major transition now. The American dollar’s role as the world’s reserve currency is inherently unstable and the signs of a breakdown are all around. Just as the monetary authorities have been unable to reinflate the high-tech bubble or the real estate bubble, when the dollar bubble is finally burst, no other paper currency will be able to take its place—at least for a generation or two when the costly lessons of irredeemable currency may have to be relearned in another era.

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Instead of trading side-by-side forever as the president had claimed, the real silver coins began to disappear from circulation at once. Despite the disappearance of gold and silver coins from the domestic monetary scene, as far as foreigners were concerned the dollar still had some ties to gold. Since the end of World War Two the dollar has been the accepted reserve currency of the world, initially because of its promised convertibility to gold. The London Gold Pool was established in 1961 to maintain the fiction of dollar convertibility at the rate of $35 to the ounce. To keep the price stable, the pool was supposed to sell gold when the price rose above that benchmark and buy when it fell.

How to Speak Money: What the Money People Say--And What It Really Means by John Lanchester

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, asset allocation, Basel III, behavioural economics, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, blood diamond, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collective bargaining, commoditize, creative destruction, credit crunch, Credit Default Swap, crony capitalism, Dava Sobel, David Graeber, disintermediation, double entry bookkeeping, en.wikipedia.org, estate planning, fear index, financial engineering, financial innovation, Flash crash, forward guidance, Garrett Hardin, Gini coefficient, Glass-Steagall Act, global reserve currency, high net worth, High speed trading, hindsight bias, hype cycle, income inequality, inflation targeting, interest rate swap, inverted yield curve, Isaac Newton, Jaron Lanier, John Perry Barlow, joint-stock company, joint-stock limited liability company, junk bonds, Kodak vs Instagram, Kondratiev cycle, Large Hadron Collider, liquidity trap, London Interbank Offered Rate, London Whale, loss aversion, low interest rates, margin call, McJob, means of production, microcredit, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, negative equity, neoliberal agenda, New Urbanism, Nick Leeson, Nikolai Kondratiev, Nixon shock, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, oil shock, open economy, paradox of thrift, plutocrats, Ponzi scheme, precautionary principle, proprietary trading, purchasing power parity, pushing on a string, quantitative easing, random walk, rent-seeking, reserve currency, Richard Feynman, Right to Buy, road to serfdom, Ronald Reagan, Satoshi Nakamoto, security theater, shareholder value, Silicon Valley, six sigma, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Jobs, survivorship bias, The Chicago School, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tragedy of the Commons, trickle-down economics, two and twenty, Two Sigma, Tyler Cowen, Washington Consensus, wealth creators, working poor, yield curve

Sometimes, it’s for pretty much the same reasons people go to pawnshops—because they need the cash immediately, in order to balance their books; sometimes it’s as a part of much more complicated strategies to do with the mix of risks and assets on their books; and sometimes it’s a bit more shady than that, as when Lehman Brothers, just before the bank collapsed, used a repo to hide $50 billion of dodgy assets from the Feds. reserve currency A currency held in large quantities by foreign governments and companies: at the moment, the global reserve currency is the US dollar. (In the first quarter of 2013, the dollar made up 62.2 percent of foreign exchange reserves, the euro 23.7 percent). That means in effect that the dollar is the earth’s currency: for instance, almost all commodity transactions are priced in dollars, including the most important one of all, oil. Being able to print as much of the global reserve currency as it wants is a huge economic advantage for the USA.

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decoupling What happens when two processes that used to be linked start to operate independently. In recent years it has taken on a specific meaning, to do with the separation of the rest of the world economy from the performance of the United States. Because the USA is the biggest economy in the world, and because the US dollar is the world’s reserve currency, the US economy and the spending power of the US consumer have since the Second World War in effect been the driving force of the world economy. The question at issue after the credit crunch and during the Great Recession was whether new sources of growth in the world, particularly the developing and emerging world and very specifically China, would be able to keep growing at a sufficiently strong rate to keep the global economy in motion.

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paradis fiscal The wonderful French term for tax haven—I love the idea that a tax-free location is a form of paradise, in which people spend all their time cavorting on yachts. petrodollar Money made by selling oil; these transactions are denominated in US dollars because the USA made a deal with Saudi Arabia, after the collapse of the Bretton Woods agreement in 1971, as a way of maintaining demand for the US dollar as the de facto global reserve currency. positional goods Things whose value is determined not by how useful they are in themselves but by the fact that other people can’t have them. The term was coined by Fred Hirsch in his 1976 book Social Limits to Growth. Positional goods are tools for signaling status, and the fact that the owner of the positional good is doing better than the people around her.

The Post-American World: Release 2.0 by Fareed Zakaria

"World Economic Forum" Davos, affirmative action, agricultural Revolution, airport security, Alan Greenspan, anti-communist, Asian financial crisis, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, BRICs, British Empire, call centre, capital controls, central bank independence, centre right, collapse of Lehman Brothers, conceptual framework, Credit Default Swap, currency manipulation / currency intervention, delayed gratification, Deng Xiaoping, double entry bookkeeping, failed state, Fall of the Berlin Wall, financial innovation, global reserve currency, global supply chain, Great Leap Forward, illegal immigration, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, low interest rates, Mahatma Gandhi, Martin Wolf, mutually assured destruction, National Debt Clock, new economy, no-fly zone, oil shock, open economy, out of africa, Parag Khanna, postindustrial economy, purchasing power parity, race to the bottom, reserve currency, Ronald Reagan, Silicon Valley, Silicon Valley startup, South China Sea, Steven Pinker, Suez crisis 1956, The future is already here, The Great Moderation, Thomas L Friedman, Thomas Malthus, three-masted sailing ship, trade route, Washington Consensus, working-age population, young professional, zero-sum game

In each case, the hegemon was the dominant economic and military player, becoming the market and lender of last resort, home to the world financial center, and holder of the reserve currency. In politico-military terms, each secured the sea lanes, balanced against rising threats, and intervened when it thought necessary to prevent disorder. Although both made many mistakes, the stability of the system and the success of the world economy and the open societies it created are an extraordinary legacy of Anglo-American hegemony. What if that hegemony is waning? America no longer has the only large market in the world. The dollar is unlikely to retain its totemic position forever as the reserve currency, yielding to a basket that is largely composed of euros and dollars but includes other currencies too.

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For almost three centuries, the world has been undergirded by the presence of a large liberal hegemon—first Britain, then the United States. These two superpowers helped create and maintain an open world economy, protecting trade routes and sea lanes, acting as lenders of last resort, holding the reserve currency, investing abroad, and keeping their own markets open. They also tipped the military balance against the great aggressors of their ages, from Napoleon’s France, to Germany, to the Soviet Union. For all its abuses of power, the United States has been the creator and sustainer of the current order of open trade and democratic government—an order that has been benign and beneficial for the vast majority of humankind.

…

For all its abuses of power, the United States has been the creator and sustainer of the current order of open trade and democratic government—an order that has been benign and beneficial for the vast majority of humankind. As things change, and as America’s role changes, that order could begin to fracture. The collapse of the dollar—to the point where there was no global reserve currency—would be a problem for the world just as much as for America. And solving common problems in an era of diffusion and decentralization could turn out to be far more difficult without a superpower. Some Americans have become acutely conscious of the changing world. Business leaders are increasingly aware of the shifts taking place around the world and responding to them rapidly and unsentimentally.

The Pay Off: How Changing the Way We Pay Changes Everything by Gottfried Leibbrandt, Natasha de Teran

"World Economic Forum" Davos, Alan Greenspan, Ayatollah Khomeini, bank run, banking crisis, banks create money, Bear Stearns, Big Tech, bitcoin, blockchain, call centre, cashless society, Clayton Christensen, cloud computing, coronavirus, COVID-19, Credit Default Swap, cross-border payments, cryptocurrency, David Graeber, Donald Trump, Edward Snowden, Ethereum, ethereum blockchain, financial exclusion, global pandemic, global reserve currency, illegal immigration, information asymmetry, initial coin offering, interest rate swap, Internet of things, Irish bank strikes, Julian Assange, large denomination, light touch regulation, lockdown, low interest rates, M-Pesa, machine readable, Money creation, money: store of value / unit of account / medium of exchange, move fast and break things, Network effects, Northern Rock, off grid, offshore financial centre, payday loans, post-industrial society, printed gun, QR code, RAND corporation, ransomware, Real Time Gross Settlement, reserve currency, Rishi Sunak, Silicon Valley, Silicon Valley startup, Skype, smart contracts, sovereign wealth fund, special drawing rights, tech billionaire, the payments system, too big to fail, transaction costs, WikiLeaks, you are the product

The USA has by far the biggest and most established domestic securities market, so there are plenty of liquid assets in which to keep your surplus dollars if you don’t want to leave them with banks.2 With the status of global reserve currency comes ‘exorbitant privilege’: the USA is the only country that can borrow almost limitless amounts in its own currency, which effectively shields it from devaluations and speculators. It can also print money to repay its creditors, something no other country can do at the pace and in the volumes it does. This phenomenon is neither recent nor accidental. Two world wars and some adroit moves in their aftermath helped the US dollar to usurp the pound sterling in its role as the world’s reserve currency. Nor was the USA slow to appreciate that reserve currency status comes laden with power.

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The USA is therefore well placed to demand data on its customers’ transactions, wherever they live, which puts HSBC in the invidious position of having to bite the hand that feeds it: providing evidence against the country that gave it its name and supplies a good chunk of its profits. Will frequent unilateral use of this mighty weapon blunt it as some, including many of Obama’s former advisers on sanctions, claim? This could happen in two ways: first, the accelerated demise of the dollar as the world’s only reserve currency; and second, the development of alternative means to pay for sanctioned transactions. The first seems a stretch right now. As we saw earlier, the power of the dollar rests on several pillars, none of which is likely to crumble any time soon. In addition, there are the network effects (described in Chapter 9) to contend with: much of the value of the dollar rests on the fact that everyone uses it as a global unit of account and lingua franca.

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Eggers) 177 Cirrus/Maestro 58 Citibank 56, 64, 133, 158, 220–1, 222, 248, 260 Clearing House Interbank Payments System (CHIPS) 240 clearing systems 117–19, 122, 239–40 Clearpay 175 Clifford, Clark 264 Clinton, Hillary 267 closed vs open payment systems 220–6 cloud computing 270 ClubMed 170 ‘code as law’ 195–6 Collison, Patrick and John 163, 165 Committee on Payments and Market Infrastructure (CPMI) 120–1 commodity money 8 Competition and Consumer Commission, Australian 224 Competition and Markets Authority, UK 180 competition authorities 223–4, 225–6 compound interest 90 ‘Confirmation of Payee’ systems 66 Connally, John 248 Consumer Reports 89 contactless payments 11, 173 conventions, payment 15, 17–19, 121–2, 215–16, 230 Corporate Transaction Banking 95 correspondent banking 138–42, 143, 144–5, 146–8, 223, 248, 267–8 Cotten, Gerald 200 counterfeiting and piracy 108, 112, 258 Covid-19 global pandemic 6, 8, 34, 37, 111, 134, 151, 159, 224, 245 credit cards business payments 95 cardboard 40, 41, 46–7, 108 debt 45, 100, 101 fraud 46, 51, 108–10 ‘honour all cards’ rule 56–7 interchange fees 42–4, 100 interest 90, 94, 173 introduction of 19, 39–44, 45–6, 70 online payments 50–1 overspending 173 paying to pay 101 real-time authorisation 47–8, 143–4 Union Pay, China 59 use in Europe 58, 101 see also Mastercard; Visa credit checks 175 credit default swaps 132 credit derivatives 131–3 Credit Suisse 65 Crelan bank 111 crime rates 33, 67 critical mass and payment systems 69–70, 79 cross-border payments 93, 133 card networks 143–4 clearing 240 correspondent banking 138–42, 143, 144–5, 146–8 debit cards 58–9 domestic instant payment systems 144 fees 137, 238–9 G20 agenda 148–9 global payments innovation (gpi) 147–8 Hawala system 142–3 interest made by banks 145–6 Letters of Credit 149–51 money remitters 144, 146 regulations 144, 145, 148, 239 TransferWise 146–7 Crossan, Doug 172 cryptocurrencies 16, 37, 63, 84, 187–209, 252, 269, 270 see also Central Bank Digital Currencies CryptoHQ 187 Cuba 149–50, 211 Cunliffe, John 11 currency controls 144 Currency Education Program (CEP), US 25 current account bank charges 91–2, 100–1 customer-loyalty programmes 219–20 CVV and CVV2 (Card Verification Value) codes 109, 171 cybercrime 107–8, 110–14, 232–3, 270 D Danske Bank 256–7 dark net 199 data privacy regulations 179, 233–4 dating-app fraud 111–12 de-risking 267–8 debit cards 19, 49, 50, 56–9, 91, 98 debts 8–10, 13–14, 45, 170, 173–4 Decentralized Autonomous Organization (DAO) 196 Deliveroo 82–3 Deloitte 264 Denmark 172, 256, 257 derivatives market 131–3, 208 Deutsche Bank 64, 133, 166, 260 devaluation 203 DG Comp 224, 225–6 Diem/Libra 63 digital wallets 224 Dimon, Jamie 206 Diners Club 40 direct debits 67, 119 disgorgement 198 distributed computing platform 194–6 Dodd-Frank legislation 98 dollar bills, circulation overseas 24–5, 213 dollars, global power of US 246–54 domestic securities market, US 247 Dorsey, Jack 155 drugs economy 27, 255, 258, 263 Dubai First Royal Mastercard 52 Durbin Amendment 57, 98 Dutch Data Protection Authority 234 Dutch Golden Age 5 Dutch parliament 266 Dutch resistance 7–8 E EBA Clearing 239–40 eBanking 36, 181 eBay 19, 51, 52, 70, 161, 163, 165 The Economist 55, 184 email fraud 110–11 embassies, diplomatic 266–7 embedded payments 169 E.On 119 Epic Games 225 Eriksson, Björn 35 errors, payment 64–6 Escobar, Pablo 255 escrow account systems 52 Estonia, Danske Bank 256–7 Ethereum/Ether 194–6, 198–9 euro E500 bills 24, 25, 28 see also Europe; European Central Bank; European Commission; European Union; Eurozone Europaisch-Iranische Handelsbank (EIH) 248 Europay 59, 90–1 Europe bank fines and financial crime 259–60 bank revenue 98, 99, 100–1, 102–3, 237–9, 241, 242 credit card use 58, 101 current accounts 100–1 Eastern 78, 213 financial literacy 172 instant payment systems 86 own payment network 59–60 paying to pay 98, 100–1 protection of personal data 179 regulatory authorities 224, 225–6, 231, 232, 237–42, 244 use of debit cards 58–9 European Banking Authority 256 European Banking Federation 239 European Central Bank 34, 86, 205–6, 233, 237, 240–1, 271 European Commission 60, 83, 85–6, 224, 225, 237, 238, 239, 240, 271 European Payments Council (EPC) 240 European Payments Initiative 60, 271 European Union (EU) 79, 148, 180–1, 237, 238–9, 243, 244–5, 265–6 Eurozone 102–3, 119, 183, 240 eWallets 36, 52, 216, 217 executive-whaling 110–11 F FACC AG 111 Facebook 63, 70, 110, 147, 158, 165, 179, 184, 201–2, 204–6, 209, 220, 222, 224, 269 facilitators, payment 162 Fantástico 234 far-right groups 4 Faster Payments Service (FPS) 82, 83, 84, 86 FBI (Federal Bureau of Investigation) 113 federal debt 9 Federal Reserve Bank 12, 36, 37, 113–14, 131, 232, 259 Fedwire 126–7 Financial Action Task Force (FATF) 262 Financial Conduct Authority, UK 37–8 financial crime 255–64 see also counterfeiting; fraud; money laundering; robbery financial literacy 172 Financial Stability Board (FSB) 135, 268, 269 Financial Times 103, 128, 129, 166–7 FinCEN 253, 255 FinTech 38, 147, 151, 155–9, 162–7, 240 lack of regulation 156, 235–6 First American Bankshare 264 foreign ATM fees 90 foreign exchange 56, 89, 90, 93, 131, 133, 140, 144, 205, 208, 246 Foreign Funds Control (FFC), US 249 foreign reserves, dollars and 247 Fortnite 225 four-corner payment model 41–2, 174, 220 France 63, 67, 119, 243, 245, 259, 260 Frankfurt Stock Exchange 166 fraud bank 261–5 card payment 46, 51, 52, 108–9 dating-app 111 cryptocurrency 199–200 detection services 56, 162 emails 110–11 and frictionless payments 170, 171–2 social media 110 free-banking era, US 208 free speech 184 Freis, Jim 167 French foreign ministry 234 frictionless payments 170–5 Friedlein, Joe 127 G G20 148–9 geographic payment preferences 67–8, 72 George, Edward 126 Germany 28, 67, 78–9, 111, 123, 158, 166–7, 183, 243, 245, 247, 248–9 Giannini, A. P. 45 gift vouchers 53 global financial crisis (2008) 131–2 global payments cost, annual 89 global payments innovation (gpi) 147–8 global reserve currency 246–7, 252, 254 Global Transaction Banking 96 gold 12, 29 gold standard 204, 248 Google 82–3, 111, 147, 158, 169, 182, 184, 220, 222, 224, 225, 234, 271 Google Pay 184–5, 271 government bonds, dollar-based 247 Graeber, David 8–9 Great Recoinage (1816) 203 Great Western Railway 68 Greenspan, Alan 128 ‘grey money’ 29–30 Gross Domestic Profit (GDP) 25, 27, 29, 32, 33, 59, 74, 77, 89, 100, 101, 120, 121, 206, 257 Guardian 35 Guevara, Che 211 guinea coins 203 H Hamilton, Alexander 9 Harfield, Henry 149 Hawala 142–3, 216 hawaladars 143 Heineken, Freddy 27–8 Herstatt Bank 123, 125 Hin Leong 151 Hinrikus, Taavet 146 HMRC (Her Majesty’s Revenue & Customs) 150 Hock, Dee 47 Holland 7–8, 184 ‘honour all cards’ rules 56–7 housing market 127–8 HSBC (Hongkong and Shanghai Banking Corporation) 133, 252, 260, 270 Huawei 251–2 Hurricane Maria, Puerto Rico 36–7 hyper-inflation 203 I Iberpay 81 illegal activities 25–6, 27–8, 29–30, 33, 46, 164, 167, 199–200, 212–13, 255–64 see also counterfeiting and piracy; cybercrime; fraud; money laundering; robbery image scanning, cheque 67 immigrants and refugees 265, 266 in-app purchases 172, 224–5 India 38, 253–4 cash purge 29–30 instant payment system 81, 82–5, 86, 182, 271 Punjab National Bank fraud 115–16 Tez payment app 185 InfoWars 4 ING 179, 260 initial coin offerings (ICOs) 187, 193, 196 The Innovator’s Dilemma (C.

The Long Game: China's Grand Strategy to Displace American Order by Rush Doshi

"World Economic Forum" Davos, American ideology, anti-communist, Asian financial crisis, autonomous vehicles, Black Lives Matter, Bretton Woods, capital controls, coronavirus, COVID-19, crony capitalism, cross-border payments, cryptocurrency, defense in depth, deindustrialization, Deng Xiaoping, deplatforming, disinformation, Dissolution of the Soviet Union, Donald Trump, drone strike, energy security, European colonialism, eurozone crisis, financial innovation, George Floyd, global pandemic, global reserve currency, global supply chain, global value chain, Great Leap Forward, high-speed rail, Internet Archive, Internet of things, Kickstarter, kremlinology, Malacca Straits, middle-income trap, Mikhail Gorbachev, MITM: man-in-the-middle, Monroe Doctrine, Network effects, Nixon triggered the end of the Bretton Woods system, offshore financial centre, positional goods, post-truth, purchasing power parity, RAND corporation, reserve currency, rolodex, Ronald Reagan, South China Sea, special drawing rights, special economic zone, TikTok, trade liberalization, transaction costs, UNCLOS, UNCLOS, undersea cable, zero-sum game

Instead, China’s actions reveal intense and long-standing hopes for an international economic architecture in which the dollar is only one among many reserve currencies, and it is reasonable to see China’s advocacy for the renminbi in such terms as well. Beijing has increasingly turned to renminbi internationalization as an instrument to not only hasten diversification, but also build the foundation for China’s own structural power across Asia. The 2008 Global Financial Crisis marked the start of this effort. After the crisis, China’s leadership increasingly called into question the dollar’s reserve currency status. Of course, various Chinese officials had for decades criticized the international economic order as unfair and called for its reform, and leading central bank officials had at times been critical of the “irrational” monetary system and urged greater monetary surveillance of advanced economies.59 In this sense, the 2008 Global Financial Crisis marked a shift less in China’s preferences and more in its confidence that it could reshape the international economic architecture around it.

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C4ISR architecture in the face of attack might be the single most effective step the United States can take to strengthen its conventional deterrent.”57 Economic Building •Maintain Dollar Dominance amid Challenges from China and New Technology: The dollar’s status as the reserve currency is the backbone of US global hegemony, and it makes it easier for the United States to finance deficit spending, monitor cross-border financial transactions, and implement financial sanctions. The United States might constitute only a quarter of global GDP, but the dollar is 60 percent of global reserve currencies—an advantage amplified by the fact that the United States is open, retains deep and liquid financial markets, and possesses a large and diversified economy.

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In addition to the growing focus on the periphery, China also began to become far more active in pushing for international monetary reform. As the case study on financial alternatives discusses in greater detail, from 2008 onward, Chinese officials took the unprecedented step of routinely calling for monetary diversification and a weakening of the dollar’s role as reserve currency. These statements were made not only by the head of the People’s Bank of China, but also by President Hu and other senior leaders at top economic forums including the G20. This strategy was explicitly outlined in Hu’s own 2009 speech and has remained a feature of Chinese policy since. A Building Strategy China’s efforts to build regional order emerged under the rubric of Hu’s call to “Actively Accomplish Something.”

Red Flags: Why Xi's China Is in Jeopardy by George Magnus

"World Economic Forum" Davos, 3D printing, 9 dash line, Admiral Zheng, AlphaGo, Asian financial crisis, autonomous vehicles, balance sheet recession, banking crisis, Bear Stearns, Bretton Woods, Brexit referendum, BRICs, British Empire, business process, capital controls, carbon footprint, Carmen Reinhart, cloud computing, colonial exploitation, corporate governance, crony capitalism, currency manipulation / currency intervention, currency peg, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, financial deregulation, financial innovation, financial repression, fixed income, floating exchange rates, full employment, general purpose technology, Gini coefficient, global reserve currency, Great Leap Forward, high net worth, high-speed rail, hiring and firing, Hyman Minsky, income inequality, industrial robot, information security, Internet of things, invention of movable type, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, labour market flexibility, labour mobility, land reform, Malacca Straits, means of production, megacity, megaproject, middle-income trap, Minsky moment, money market fund, moral hazard, non-tariff barriers, Northern Rock, offshore financial centre, old age dependency ratio, open economy, peer-to-peer lending, pension reform, price mechanism, purchasing power parity, regulatory arbitrage, rent-seeking, reserve currency, rising living standards, risk tolerance, Shenzhen special economic zone , smart cities, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, speech recognition, The Wealth of Nations by Adam Smith, total factor productivity, trade route, urban planning, vertical integration, Washington Consensus, women in the workforce, working-age population, zero-sum game

The likelihood of China running current account deficits or allowing a meaningful liberalisation of capital account transactions any time soon is negligible. If anything, the surplus is likely to increase again as growth slows in the future. Consequently, the Renminbi is strongly handicapped when it comes to becoming a more serious global reserve currency. It is still possible for businesses and commercial organisations to use the Renminbi more for transactions in the future but that is quite different from becoming a more important global reserve currency. Second, for all the fanfare about the Renminbi’s inclusion in the Special Drawing Rights, it isn’t clear that this has much practical purpose other than to confer modest status. The SDR is not going to dethrone the US dollar, and there haven’t really been any significant initiatives to issue substantial quantities of SDR bonds or enhance its global usage.

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Ultimately, China will have to inflate or deflate its way out of debt, but both options raise penetrating questions about its capacity to absorb both the economic and social consequences. Chapter 5 reviews the Renminbi trap, asking whether China can keep its currency stable in the wake of the debt problem. It also considers the structural shortcomings that will prevent the Renminbi becoming a truly global reserve currency. Chapter 6 considers the demographic trap in the fastest ageing country on earth. Ageing is occurring substantially faster than it has done in the West, and at lower levels of income per head, giving rise to the question of whether China will get old before it gets rich. Chapter 7 focuses on the middle-income trap, a condition which is primarily about the quality and effectiveness of governance and institutions.

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The currency has been the subject of an active campaign in and outside China to internationalise its usage in denominating trade and investment transactions, and as a reserve asset held by other central banks. It is one of the constituent units of the IMF’s Special Drawing Rights, and a lot of people believe that it is on course to become a more significant reserve currency, perhaps one day rivalling the US dollar. This chapter is going to argue two things. First, that it is not enough to want currency stability – delivering it, if domestic money and credit policies are not compatible, is impossible. Second, that China cannot have a truly global currency when current account surpluses and capital controls restrict the accumulation of Renminbi by foreigners.

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, Alan Greenspan, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Big bang: deregulation of the City of London, bilateral investment treaty, book value, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon credits, Carmen Reinhart, central bank independence, classic study, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, democratizing finance, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, Glass-Steagall Act, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, military-industrial complex, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, proprietary trading, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, scientific management, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, stock buybacks, structural adjustment programs, subprime mortgage crisis, Tax Reform Act of 1986, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, vertical integration, very high income, Washington Consensus, We are all Keynesians now, Works Progress Administration, zero-coupon bond, zero-sum game

The CEO of Caterpillar, the world’s largest manufacturer of construction and mining equipment, called Washington’s debt-ceiling saga in the summer of 2011 not only “ugly” but also “a red herring,” which got in the way of Congress’s ratification of outstanding free-trade agreements, as well as much-needed domestic infrastructure programs.5 The Fed’s Ben Bernanke, noting that Congress had “disrupted financial markets,” warned that “similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold US financial assets or to make direct investments in job-creating US businesses.”6Yet, although it was precisely on these grounds that the credit-rating agency Standard & Poor’s downgraded US Treasury bonds, what was especially remarkable was that the appetite for these bonds, even at record-low interest rates, far from abating, increased.7 Ruminations about an alternative reserve currency went nowhere—especially as the smoldering crisis in Europe’s interbank markets burst into flames, sending the widespread earlier expectations that the euro would challenge the dollar up in smoke. Much like Germany in the crisis of the 1970s, even China today explicitly speaks in terms of the US’s unique responsibilities for “the world’s economic soundness,” given its status as “the world’s largest economy and the issuer of the dominant international reserve currency.” American political leaders were reminded that “political brinkmanship in Washington is dangerously irresponsible . . .

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Whereas in 1812 Jefferson had seen conquering Canada as the only way of preventing “difficulties with our neighbors,” exactly a century later President Taft could celebrate the “greater economic ties” that were making Canada “only an adjunct of the USA.”69 US economic penetration of Canada had the added advantage of “providing access to unfettered trade within the British Empire which could look like part of the scaffolding of a new world order, all the more as American capital had a growing stake in it.”70 Yet the latitude that even Canada could claim within the American informal empire was demonstrated in 1911 when Canadian voters (spurred by fears of annexation) rejected a free trade agreement with the US, and when Canada immediately entered into World War I in support of Britain, while the US initially stayed out.71 It was nevertheless a mark of the status of Canada as a “rich dependency” within the American empire that Canadian banks were virtually unique internationally in utilizing the dollar as a reserve currency, and maintained large external balances in New York as a source of liquidity and to cover the massive flow of goods and capital across the border. This would presage the type of relationship that would develop between the American empire and so many other capitalist countries, including the most advanced, before the twentieth century had run its course.

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The Republican administrations made sure, moreover, that all of Congress’s tariff bills of the 1920s, which in any case did not go back to the levels of the nineteenth century, remained linked to the Open Door reciprocity and non-discrimination principles of the 1913 Underwood Tariff. By the mid 1920s manufactured goods exports were double what they had been before the war, and from 1922 to 1928 total exports grew almost 50 percent faster even than domestic GDP, which grew in real terms by 40 percent.19 The dollar became the major reserve currency in the world financial system, albeit still sharing the stage with sterling, and to a lesser extent the franc. Moreover, the flow of private American capital to Europe after World War I was considerably greater than immediately after World War II.20 The US Department of Commerce itself claimed that the rapidity with which the US acquired foreign assets through the 1920s was “unparalleled in the experience of any major creditor nation in modern times.”21 Over the decade of the 1920s, the book value of total American foreign direct investment increased by 129 percent in manufacturing, and 95 percent overall.

The End of the Free Market: Who Wins the War Between States and Corporations? by Ian Bremmer

"World Economic Forum" Davos, affirmative action, Asian financial crisis, banking crisis, Berlin Wall, BRICs, British Empire, centre right, collective bargaining, corporate governance, creative destruction, credit crunch, Credit Default Swap, cuban missile crisis, Deng Xiaoping, diversified portfolio, Doha Development Round, Exxon Valdez, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, Glass-Steagall Act, global reserve currency, global supply chain, household responsibility system, invisible hand, joint-stock company, Joseph Schumpeter, Kickstarter, laissez-faire capitalism, low skilled workers, mass immigration, means of production, megacity, Mikhail Gorbachev, military-industrial complex, mutually assured destruction, Naomi Klein, Nelson Mandela, new economy, offshore financial centre, open economy, race to the bottom, reserve currency, risk tolerance, Savings and loan crisis, shareholder value, Shenzhen special economic zone , South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, trade route, tulip mania, uranium enrichment, Washington Consensus, Yom Kippur War, zero-sum game

The wealthiest and most powerful among the merchant class fought to preserve their state-guaranteed competitive advantages by forming alliances with well-placed bureaucrats, whose role expanded into mutually profitable enforcement of an ever-expanding web of state regulations. Why the preoccupation with gold? There was no obvious alternative. The world had no internationally accepted global reserve currency. National currencies were barely exchangeable. But wherever they traveled, even among the most primitive societies, mercantilists encountered the universal human fascination with precious metals. Generally speaking, Europe’s mercantilists had two methods of increasing their stockpiles: by building a positive trade balance (more gold coming in than going out) and by conquering the lands where new reserves were discovered.

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Officials on both sides of the Pacific saw that a bad day for America’s economy is still a bad day for China’s, and Beijing’s bid to restructure its economy to rely much more for growth on domestic consumer demand remains a long-term project. Second, as the crisis metastasized around the world, risk-averse investors again turned to U.S. treasuries as a hedge against turmoil in developing states, helping Washington protect the advantages that come with the dollar’s status as the world’s reserve currency. Finally, the same polls that underscored the Bush administration’s international unpopularity revealed that the election of Barack Obama had inspired much more positive attitudes toward America and its role in the world in almost every country surveyed.9 Yet over the longer term, the financial crisis has done considerable damage to America’s ability to lead by example as a champion of free-market capitalism.

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Could they use their acquisitions to gain access to classified information, defense technologies, or trade secrets? On the other hand, as the world recovers from the global recession and investors regain their appetite for risk, what if we discover that state-capitalist governments mean what they say about diversifying away from the dollar to diminish its status as the world’s reserve currency? In other words, what if they slowly but steadily reduce their willingness to finance America’s debt by buying U.S. Treasury bills? In 2008, as America’s subprime mortgage mess generated an international crisis, sovereign wealth funds from Asia and the Middle East rode to the rescue with tens of billions of dollars for Citigroup, Merrill Lynch, and other financial institutions.

Strong Towns: A Bottom-Up Revolution to Rebuild American Prosperity by Charles L. Marohn, Jr.

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, A Pattern Language, American Society of Civil Engineers: Report Card, anti-fragile, bank run, big-box store, Black Swan, bread and circuses, Bretton Woods, British Empire, business cycle, call centre, cognitive dissonance, complexity theory, corporate governance, Detroit bankruptcy, Donald Trump, en.wikipedia.org, facts on the ground, Ferguson, Missouri, gentrification, global reserve currency, high-speed rail, housing crisis, index fund, it is difficult to get a man to understand something, when his salary depends on his not understanding it, Jane Jacobs, Jeff Bezos, low interest rates, low skilled workers, mass immigration, megaproject, Modern Monetary Theory, mortgage debt, Network effects, new economy, New Urbanism, paradox of thrift, Paul Samuelson, pensions crisis, Ponzi scheme, quantitative easing, reserve currency, restrictive zoning, Savings and loan crisis, the built environment, The Death and Life of Great American Cities, trickle-down economics, Upton Sinclair, urban planning, urban renewal, walkable city, white flight, women in the workforce, yield curve, zero-sum game

Our modern development pattern – a continental-scale social experiment – was established during a period of unprecedented abundance after World War II. We were not only the sole economic superpower that wasn’t devastated by war; the biggest players in the world were indebted to us. We held the global reserve currency, we had the greatest amount of easily accessible oil and coal resources, and we had a generation of motivated young people culturally unified by shared hardship and common enemies. All the systems that launched this massive experiment, from the new financing mechanisms to the highway and infrastructure programs, were developed at a unique period of time when we could dream big and accomplish anything.

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Keynes had argued against the gold-backing – some contend to free economies from the constraints of gold-backing, others as a cynical ploy to maintain the power of the British Empire’s sterling trading block – but the American negotiators, who literally had the gold, insisted on it. One ounce of gold was set at $35. The U.S. dollar was now as good as gold and would become the world’s reserve currency. To grasp the profound nature of this arrangement, understand that the sale of oil by the Soviet Union to communist China was done in U.S. dollars. Everyone wanting to trade needed dollars, an exorbitant privilege for the last country standing. The Post-War Boom Paul Samuelson, Nobel prize–winning economist and perhaps second only to Keynes in terms of influence on modern economics, wrote an essay in 1943 on employment after the war.

…

Not only did the country avoid a return to economic depression, the United States embarked on a multi-decade economic mania that is still looked at as a golden age. America took its industrial capacity and directed it toward building a new version of prosperity, a continent-wide experiment in a new living arrangement. With the world’s reserve currency, abundant and cheap oil, and low individual debt levels, the United States serendipitously found itself with the ingredients it needed for rapid economic growth. What happened was a generation of American growth, two and a half decades of spreading prosperity that is still broadly nostalgized.

India's Long Road by Vijay Joshi

Affordable Care Act / Obamacare, barriers to entry, Basel III, basic income, blue-collar work, book value, Bretton Woods, business climate, capital controls, carbon tax, central bank independence, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, congestion charging, Cornelius Vanderbilt, corporate governance, creative destruction, crony capitalism, decarbonisation, deindustrialization, demographic dividend, demographic transition, Doha Development Round, eurozone crisis, facts on the ground, failed state, financial intermediation, financial repression, first-past-the-post, floating exchange rates, foreign exchange controls, full employment, germ theory of disease, Gini coefficient, global supply chain, global value chain, hiring and firing, income inequality, Indoor air pollution, Induced demand, inflation targeting, invisible hand, land reform, low interest rates, Mahatma Gandhi, manufacturing employment, Martin Wolf, means of production, microcredit, moral hazard, obamacare, Pareto efficiency, price elasticity of demand, price mechanism, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, race to the bottom, randomized controlled trial, rent-seeking, reserve currency, rising living standards, school choice, school vouchers, secular stagnation, Silicon Valley, smart cities, South China Sea, special drawing rights, The Future of Employment, The Market for Lemons, too big to fail, total factor productivity, trade liberalization, Tragedy of the Commons, transaction costs, universal basic income, urban sprawl, vertical integration, working-age population

As things stand, there is a large gap in the ability of the IMS to expand international liquidity rapidly to manage a global crisis.27 The global reserve system is also deeply problematic from a long-​run perspective due to the potential instability involved in national currencies serving as international reserves (in other words, a modern version of the old ‘Triffin problem’).28 If a reserve issuer (such as the United States) runs persistent surpluses, the world is starved of liquidity; if it runs persistent deficits, its external debt rises too fast and confidence in the reserve currency is sapped. The number of reserve currencies is set to rise in future. The euro has joined the dollar as a major reserve currency though its future is still rather clouded due to the troubles of the eurozone. The Chinese renminbi is the obvious next candidate in line, if and when it becomes freely convertible.29 Optimists hope that competition between reserve currencies will discipline reserve issuers and resolve the ‘new Triffin problem’. But this is too sanguine. Currently, instability is kept in check by the fact that those who wish to flee from the dollar have few good alternatives.

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Currently, instability is kept in check by the fact that those who wish to flee from the dollar have few good alternatives. In a world in which there were, say, three reserve currencies, there could be large destabilizing movements of money, if confidence in one of them were to weaken. China’s recent moves to ‘internationalize’ the renminbi suggest that it is committed to making it an international reserve currency. So, in the long run, the drive to a multi-​ currency reserve system is probably unstoppable. In principle, an SDR-​based reserve system would be much more stable. But despite the agreement in 2009 to increase the supply of SDRs by $200 billion, they constitute only 4 per cent of global reserves.

…

In 2014, India joined the other BRICS countries to set up a development bank and a ‘contingency reserve fund’ to share currency reserves. But the latter is miniscule in size. See Steil (2014). Triffin (1960). The IMF decided at the end of 2015 to include the renminbi in the SDR basket. This is an important staging post on the way to the renminbi becoming a reserve currency. If BRICS and other emerging countries had presented a united front, they could have secured substantial changes in IMF governance after the 2008 crisis, when they became major lenders to the IMF, and European countries became major borrowers. I n di a a n d t h e W or l d Ec o n o m y [ 271 ] 272 31.

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

After the Bretton Woods system collapsed in 1971, the US dollar became the global reserve currency. After this date most international trade was denominated in the US currency, along with a large share of cross-border financial transactions. Dozens of countries pegged their own currencies to the dollar. If the Gold Standard was characterized by its ‘golden fetters’, the chief vice of the Dollar Standard is its extreme elasticity. Central bank reserves are mostly composed of dollar-denominated securities (US Treasury bonds and agency debt), which, unlike gold, can be issued without limit. As the keeper of the world’s reserve currency, the United States doesn’t need to maintain its own foreign-exchange reserves, nor worry about its balance of payments.

…

On each of these occasions, the lack of inflation encouraged central banks to maintain interest rates below the economy’s growth rate. Each of these credit booms ended in disaster. In Part Three (The Game of Marbles) we examine the impact of ultra-low interest rates on emerging markets. The initial effect of reducing rates to zero on the world’s reserve currency, the US dollar, was to drive capital flows into emerging markets. Commodity prices took off. Rising food prices helped to spur the 2011 popular uprising in the Middle East known as the Arab Spring. After the Federal Reserve started to tighten policy a couple of years later, commodity prices collapsed and emerging markets entered the doldrums.

…

Why were the credit systems of so many different countries, from Australia to Iceland, so vulnerable at the time? The unifying factor appears to be the low-interest rate policy of the Federal Reserve at the turn of the century, which, owing to the special position of the dollar as the global reserve currency, created the conditions for a credit boom that engulfed much of the world’s economy. Prior to the crisis, global interest rates were negative in real terms and far below the growth rate of the world’s economy. Even countries with relatively high interest rates enjoyed no respite, since they were inundated with foreign capital flows.fn9 There’s no need to appeal to ad hoc explanations: easy money produced the boom and the boom was followed by the inevitable bust.

The Left Case Against the EU by Costas Lapavitsas

anti-work, antiwork, banking crisis, Bretton Woods, capital controls, central bank independence, collective bargaining, declining real wages, eurozone crisis, financial engineering, Francis Fukuyama: the end of history, global reserve currency, hiring and firing, low interest rates, machine translation, neoliberal agenda, offshore financial centre, post-work, price stability, quantitative easing, reserve currency, Ronald Reagan, Washington Consensus, Wolfgang Streeck

The first is that the EMU has not simply created a common means of exchange among its members. From its inception the euro was designed to serve an international role, not only among EMU member states but also in relation to the world market. It has always been a competitor to the dollar and other global reserve currencies, a form of what Marx called ‘world money’.34 World money is qualitatively different from national monies because it acts as a means of payment and a means of hoarding in the world market, a role that gold has historically played for centuries, and which has been assumed by the US dollar for decades.

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The euro is a peculiar form of world money because it has been created ex nihilo through the monetary union of several states of vastly different economic and political power. There is nothing ‘natural’ or ‘spontaneous’ about the emergence of the euro in the contemporary international markets, and that is a source of both strength and weakness. To act as a world reserve currency the euro has had to gain global acceptability and credibility from scratch, and its institutional mechanisms were designed partly with this purpose in mind. The ECB and the Eurosystem were created with the express aim of ensuring price stability, which is necessary for the euro to act as a reserve of value.

…

EU policy defended primarily the interests of big business, and especially banks, at the expense of wage labour and the poor. Perhaps worst of all, it did not fully resolve the crisis but rather pacified it, and has left the EMU in a still precarious position at the end of the 2010s. The paramount concern of the EU was to prevent the monetary union from collapsing, and to defend the euro as an international reserve currency. To this purpose it was imperative to protect the interests of banks, particularly those of the core. It was also necessary to boost the regime of fiscal discipline that was already integral to the monetary union. For the EU, the monetary union had to continue functioning in accordance with Maastricht, which meant that the existing framework had to be made stronger and harsher.

The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis by Tim Lee, Jamie Lee, Kevin Coldiron

active measures, Alan Greenspan, Asian financial crisis, asset-backed security, backtesting, bank run, Bear Stearns, Bernie Madoff, Bretton Woods, business cycle, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, collapse of Lehman Brothers, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, currency risk, debt deflation, disinformation, distributed ledger, diversification, financial engineering, financial intermediation, Flash crash, global reserve currency, implied volatility, income inequality, inflation targeting, junk bonds, labor-force participation, Long Term Capital Management, low interest rates, Lyft, margin call, market bubble, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, negative equity, Network effects, Ponzi scheme, proprietary trading, public intellectual, purchasing power parity, quantitative easing, random walk, rent-seeking, reserve currency, rising living standards, risk free rate, risk/return, sharing economy, short selling, short squeeze, sovereign wealth fund, stock buybacks, tail risk, TikTok, Uber and Lyft, uber lyft, yield curve

However, when things do happen, when exchange rates or asset prices move against the carry trader, losses can mount suddenly and substantially. A significant part of this book is devoted to explaining these trades, particularly in the currency and the stock markets. One conclusion is that the greater liquidity and breadth of financial instruments in the US markets, as well as the dollar’s role as the global reserve currency, has placed the US markets, and specifically the S&P 500 index, at the center of the global carry trade. A further purpose of the book is to convey how carry has come to dominate the global business cycle, creating a pattern of long, steady, but unspectacular expansions punctuated by catastrophic crises.

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Low or zero inter- 196 THE RISE OF CARRY est rates in the major developed economies, bailouts, central banks’ quantitative easing policies, and their implicit promise to intervene in the event of market “instability” have all encouraged investment or speculative strategies that seek to extract a return from expectations of low market volatility. Given the increasing dominance of the dollar as the carry funding currency of choice, along with its role as the world’s major reserve currency, a further, crucial, element of the picture has been the US Federal Reserve’s liquidity swap arrangements with other central banks and the Fed’s willingness to enter into liquidity swaps on a large scale when there is stress in the dollar funding markets. Central bank liquidity swap arrangements can also be perceived as underwriting the “circular flow of dollars” in the global economy (a topic of the discussion of the currency carry trade in Chapter 2).

…

When we think of the global carry regime as being a fundamentally deflationary regime composed of trillions of dollars of potentially interconnected currency carry trades, credit carry trades, and volatility selling trades in general, then it would be unlikely that this regime could exist with the dollar as the predominant funding and reserve currency without the Fed’s underwriting of it via liquidity swaps. To illustrate, we can return to an example used earlier in the book, of a hypothetical Brazilian company that has borrowed dollars to finance a domestic investment. Imagine that at the time the funding matures and has to be refinanced, there is a global carry crash; carry trades are being unwound, and the Brazilian currency, the real, plunges against the dollar.

The Controlled Demolition of the American Empire by Jeff Berwick, Charlie Robinson

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, airport security, Alan Greenspan, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, bank run, barriers to entry, Berlin Wall, Bernie Sanders, Big Tech, big-box store, bitcoin, Black Lives Matter, bread and circuses, Bretton Woods, British Empire, call centre, carbon credits, carbon footprint, carbon tax, Cass Sunstein, Chelsea Manning, clean water, cloud computing, cognitive dissonance, Comet Ping Pong, coronavirus, Corrections Corporation of America, COVID-19, crack epidemic, crisis actor, crony capitalism, cryptocurrency, dark matter, deplatforming, disinformation, Donald Trump, drone strike, Edward Snowden, Elon Musk, energy transition, epigenetics, failed state, fake news, false flag, Ferguson, Missouri, fiat currency, financial independence, George Floyd, global pandemic, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, Indoor air pollution, information security, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jeff Bezos, Jeffrey Epstein, Julian Assange, Kickstarter, lockdown, Mahatma Gandhi, mandatory minimum, margin call, Mark Zuckerberg, mass immigration, megacity, microapartment, Mikhail Gorbachev, military-industrial complex, new economy, no-fly zone, offshore financial centre, Oklahoma City bombing, open borders, opioid epidemic / opioid crisis, pill mill, planetary scale, plutocrats, Ponzi scheme, power law, pre–internet, private military company, Project for a New American Century, quantitative easing, RAND corporation, reserve currency, RFID, ride hailing / ride sharing, Saturday Night Live, security theater, self-driving car, Seymour Hersh, Silicon Valley, smart cities, smart grid, smart meter, Snapchat, social distancing, Social Justice Warrior, South China Sea, stock buybacks, surveillance capitalism, too big to fail, unpaid internship, urban decay, WikiLeaks, working poor

The dollar is not worth nearly as much as people perceive it to be, in part because of the excessive money printing, but that is not the biggest problem that it faces these days, and it is not the only reason for the difference between the perceived value of the dollar and its actual value. The removal of the Petrodollar as the world’s reserve currency will mean that countries around the world will no longer be forced to purchase all of the oil that they require in U.S. Dollars exclusively. When these dollars are no longer needed, they will return back to whence they came, which is the United States. As they begin to pile up inside America, their value will fall, and this removal as the world’s reserve currency will be the event that destroys the American Empire, financially at first, then socially only weeks later. America will do what all flailing empires do when faced with their own mortality: they will pretend that this time is different and that those empires that have crumbled before them were either weak militarily, lacking in fiscal creativity, or morally inferior, but none of this will matter because in the end all empires crumble under the weight of their own greed and arrogance, and no amount of propping up by their bought-off accomplices in the corporate media will help to break their fall.

…

• Brittan (1815-1945) 130 years. • United States (1945-2020+) 75 years. Officially the U.S. dollar has only been the world’s reserve currency for a little over 75 years, but the dollar has been used to settle trades since 1920 and has been used in world finance for purposes like world wars and the like. The Federal Reserve started their scheme in 1913 and instituted the Internal Revenue Service as the funding mechanism, so the dollar has been in its current iteration for over 100 years, maybe not as the reserve currency the entire time, but definitely globally manipulated since the beginning, and recognized by most nations as the dominant currency.

…

They always cross that threshold at some point, without fail, whether they are an average country just trying to find that line, an up-and-coming country testing out the boundaries of their currency, or a decrepit and corrupt empire on its last leg. For every country that has been delisted as the world’s reserve currency, they have been immediately plunged into a decade’s long depression featuring a string of wars and bloody revolutions on the streets. These currency situations are not built to be sustainable, and they are not, lasting usually about a century under the best of circumstances. Like a metropolis built on a fault line, the question is not “if” the big one is coming, but “when”?

Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam Lebor

Alan Greenspan, banking crisis, Basel III, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, central bank independence, corporate governance, corporate social responsibility, deindustrialization, eurozone crisis, fiat currency, financial independence, financial innovation, foreign exchange controls, forensic accounting, Glass-Steagall Act, Goldman Sachs: Vampire Squid, haute cuisine, IBM and the Holocaust, Kickstarter, low interest rates, Occupy movement, offshore financial centre, Ponzi scheme, power law, price stability, quantitative easing, reserve currency, special drawing rights

Henry Morgenthau and Harry Dexter White led the American delegation. The conference agreed on the creation of the International Monetary Fund (IMF) and an International Bank for Reconstruction and Development (BRD), which became part of the World Bank. The IMF would monitor exchange rates and lend reserve currencies to indebted countries. The new bank would provide loans to underdeveloped countries. Bretton Woods also gave its name to a new international currency exchange system, where currencies were linked to the US dollar. In exchange the United States agreed to fix the price of gold at $35 an ounce.

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Which was true enough, as Abs had embodied a century of German banking, although not in the adulatory sense that the writer had envisaged.17 ALWAYS QUICK TO adapt to changing circumstances, the BIS spotted a new opportunity during the 1960s. The continuing drain on Britain’s economy of its empire and the country’s general economic malaise made sterling increasingly vulnerable. But sterling was also a reserve currency, especially across Britain’s current and former dominions. Thus sterling, like the price of gold, had to be stabilized. The BIS was not a lender of last resort, but it could arrange loans to troubled central banks. In June 1966 a group of European central banks, the New York Federal Reserve, and the BIS agreed to make around $1 billion available to the Bank of England to defend sterling.

…

This was significant, not just because of the sums involved, but because the BIS was its center. All the monies involved, apart from French and American funds, would be paid through a single account at the BIS. The bank was now coordinating a long-term strategic rescue of one of the world’s reserve currencies. However opaque the governors’ meetings were, they were a more edifying spectacle than the farcical and very public scenes at the November 1968 G10 conference in Bonn. With the franc and sterling under pressure, and German reserves up by $4 billion, the conference was always going to be difficult.

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Big Tech, bitcoin, bond market vigilante , Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, capitalist realism, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, democratizing finance, Donald Trump, emotional labour, eurozone crisis, Extinction Rebellion, extractivism, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, green new deal, Greenspan put, housing crisis, Hyman Minsky, impact investing, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Jeremy Corbyn, job polarisation, junk bonds, Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low interest rates, low skilled workers, market clearing, means of production, Modern Monetary Theory, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Phillips curve, Ponzi scheme, Post-Keynesian economics, post-war consensus, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, Robert Solow, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

He was hindered in his battle against international finance by the formidable Dexter White, backed up by the full force of US imperial power. White wished to retain the US dollar as the centre of the international monetary system, whilst Keynes wanted it replaced with a new international currency — the bancor. White emerged victorious, and the US gained the “exorbitant privilege” of controlling the world’s reserve currency.5 In other words, as well as constraining international finance, Bretton Woods also institutionalised American imperialism.6 The Bretton Woods conference marked the dawning of a new era for the global economy. Europe set about the long processes of post-war reconstruction and decolonisation, and the multinational corporations of the world’s newest superpower profited handsomely.7 Trade flows increased after the years of autarky during the war, and a new age of globalisation began.

…

Socialist and newly-wealthy oil-producing states that wanted to hold dollar deposits without depositing them in US banks were able to put their dollars in London instead. London’s Eurodollar markets grew substantially as a result. The Eurodollar markets undermined Bretton Woods by creating a global system of unregulated capital flows.13 Those investors holding dollars — pretty much everyone, given the use of the dollar as the global reserve currency — could now deposit them into the City of London. These dollars would then be free to float around the global economy at will, unhindered by the strict regulation then imposed on US banks by the Federal Reserve. Billions of dollars had ended up in the unregulated Eurodollar markets by the 1970s, undermining Keynes’ determination to curb the hot money of the rentier class.

…

The combination of the emergence of the Eurodollar markets and the rise of the multinational corporation were beginning to place serious strain on Bretton Woods. But it was the US government — not the banks — that dealt the final blow to the system that it had helped to create. With the dollar as the reserve currency, the US had gained the “exorbitant privilege” of being able to produce dollars to finance its spending15. Because everyone needed dollars, the US could spend as much as it liked without the threat of hyper-inflation. The gold peg was supposed to rein in this behaviour: if investors started to think that there were more dollars in circulation than gold to back it up, they might turn up at Fort Knox demanding the weight of their dollars in gold.

Culture & Empire: Digital Revolution by Pieter Hintjens

4chan, Aaron Swartz, airport security, AltaVista, anti-communist, anti-pattern, barriers to entry, Bill Duvall, bitcoin, blockchain, Boeing 747, bread and circuses, business climate, business intelligence, business process, Chelsea Manning, clean water, commoditize, congestion charging, Corn Laws, correlation does not imply causation, cryptocurrency, Debian, decentralized internet, disinformation, Edward Snowden, failed state, financial independence, Firefox, full text search, gamification, German hyperinflation, global village, GnuPG, Google Chrome, greed is good, Hernando de Soto, hiring and firing, independent contractor, informal economy, intangible asset, invisible hand, it's over 9,000, James Watt: steam engine, Jeff Rulifson, Julian Assange, Kickstarter, Laura Poitras, M-Pesa, mass immigration, mass incarceration, mega-rich, military-industrial complex, MITM: man-in-the-middle, mutually assured destruction, Naomi Klein, national security letter, Nelson Mandela, new economy, New Urbanism, no silver bullet, Occupy movement, off-the-grid, offshore financial centre, packet switching, patent troll, peak oil, power law, pre–internet, private military company, race to the bottom, real-name policy, rent-seeking, reserve currency, RFC: Request For Comment, Richard Feynman, Richard Stallman, Ross Ulbricht, Russell Brand, Satoshi Nakamoto, security theater, selection bias, Skype, slashdot, software patent, spectrum auction, Steve Crocker, Steve Jobs, Steven Pinker, Stuxnet, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, trade route, transaction costs, twin studies, union organizing, wealth creators, web application, WikiLeaks, Y2K, zero day, Zipf's Law

Often, the world had a "reserve currency" that was considered the most stable and convertible, and held by governments as part of their foreign exchange reserves. For a long time, this was the British Pound Sterling. Then in the middle of the last century, the US Dollar became a significant reserve currency, and at the start of this century, the Euro joined. The government behind a reserve currency tends to use it to create debt, which then causes the currency to deflate and the world to switch to another. This seems to be happening with the US Dollar today, though it's unclear what the future reserve currency would be.

…

This seems to be happening with the US Dollar today, though it's unclear what the future reserve currency would be. The Internet has been searching for a reserve currency, indeed any currency that could be used to buy goods and services on line, for a long time. The digital economy presents a unique set of challenges for security and privacy. Credit Cards Most Internet trade still uses credit cards from firms like Visa and MasterCard. These firms charge merchants about 3-4% on each transaction, which is an astonishing amount and points to a cartel operation. Indeed, these two firms have been under fire from European antitrust authorities for years. They should have gotten some patents. Mobile phones can now be turned into wireless credit card terminals by using little credit card readers that plug into the phone.

The Asian Financial Crisis 1995–98: Birth of the Age of Debt by Russell Napier

Alan Greenspan, Asian financial crisis, asset allocation, bank run, banking crisis, banks create money, Berlin Wall, book value, Bretton Woods, business cycle, Buy land – they’re not making it any more, capital controls, central bank independence, colonial rule, corporate governance, COVID-19, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, Deng Xiaoping, desegregation, discounted cash flows, diversification, Donald Trump, equity risk premium, financial engineering, financial innovation, floating exchange rates, Fractional reserve banking, full employment, Glass-Steagall Act, hindsight bias, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, if you build it, they will come, impact investing, inflation targeting, interest rate swap, invisible hand, Japanese asset price bubble, Jeff Bezos, junk bonds, Kickstarter, laissez-faire capitalism, lateral thinking, Long Term Capital Management, low interest rates, market bubble, mass immigration, means of production, megaproject, Mexican peso crisis / tequila crisis, Michael Milken, Money creation, moral hazard, Myron Scholes, negative equity, offshore financial centre, open borders, open economy, Pearl River Delta, price mechanism, profit motive, quantitative easing, Ralph Waldo Emerson, regulatory arbitrage, rent-seeking, reserve currency, risk free rate, risk-adjusted returns, Ronald Reagan, Savings and loan crisis, savings glut, Scramble for Africa, short selling, social distancing, South China Sea, The Wealth of Nations by Adam Smith, too big to fail, yield curve

It had been the decline in the US dollar, combined with strong capital inflows, which had forced the central banks to create the excess liquidity that was fuelling high economic growth and ever higher local asset prices. The Asian growth story was supposed to be about good fundamentals and those special ‘Asian values’ and not the direction of the reserve currency on the international exchanges. Throughout this period of a rising dollar, which had begun in early 1995, institutional investors often referenced the declining valuations of Asian equities as reasons to invest. This insistence on basing investment decisions on such value considerations, as the rise of the US dollar negatively impacted domestic liquidity conditions, was perhaps the biggest mistake investors were to make in this period.

…

This was not yet evident by early August, but on 4 September Alan Greenspan spoke in California and stated that “it is just not credible that the United Sates can remain an oasis of prosperity” given what was happening in the rest of the world. He was not to cut US interest rates until later that month, but his willingness to do so had been flagged up by his speech of 4 September. Relief in the form of easier monetary policy from the central bank running the world’s reserve currency was now just a few weeks away. Investors in Asian equities still had to weather the storms of August. The great inflexion? 5 August 1998, Regional So what happens if one company gains competitiveness through a falling currency while the other loses it? Well, if the Asian equity markets continue their slump, the answer to that question is that the share prices of both companies fall.

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As suggested yesterday, at this stage the BOJ is doing its turn centre stage and attempting to produce a consumption boom which would move Japan rapidly into a current account deficit. I believe the chances of that being successful are at best one in ten, but most investors seem to think that one in a 100 would be a fairer price to quote on this one. Anyway, at some stage it seems highly likely that the steward of the world’s reserve currency will have to get into the business of providing liquidity relief to prevent the global commercial banking system producing a huge global credit contraction. So the US dollar is likely to face a larger trade deficit, a rapid slowdown in capital inflows and the prospect of lower domestic interest rates.

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"there is no alternative" (TINA), "World Economic Forum" Davos, 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Alan Greenspan, Albert Einstein, Alfred Russel Wallace, Anthropocene, Anton Chekhov, Asian financial crisis, banking crisis, Bear Stearns, Berlin Wall, bitcoin, bond market vigilante , Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, digital divide, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial engineering, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, geopolitical risk, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, Great Leap Forward, Greenspan put, happiness index / gross national happiness, high-speed rail, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), it is difficult to get a man to understand something, when his salary depends on his not understanding it, It's morning again in America, Jane Jacobs, John Maynard Keynes: technological unemployment, junk bonds, Kenneth Rogoff, Kevin Roose, knowledge economy, knowledge worker, Les Trente Glorieuses, light touch regulation, liquidity trap, Long Term Capital Management, low interest rates, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, middle-income trap, Mikhail Gorbachev, military-industrial complex, Minsky moment, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, PalmPilot, passive income, peak oil, peer-to-peer lending, pension reform, planned obsolescence, plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Robert Solow, Ronald Reagan, Russell Brand, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, Stephen Fry, systems thinking, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

The West, moreover, did not want to confer any advantage on the communist Soviet Union, which controlled a sizeable proportion of known gold reserves and had emerged as a geopolitical rival to the US. Bretton Woods therefore established a system of fixed exchange rates using the US dollar as a reserve currency. The dollar was to have a set relationship to gold, at US$35 an ounce, and the US government committed to converting dollars into gold at that price. Other countries would peg their currencies to it, giving the US an unprecedented influence in the global economy that exists to this day. Supreme as the world's currency, the dollar was now as good as gold.

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The actions have made it difficult for immigrants or foreign workers to remit funds to the developing world, which provide critical support for families and communities. Foreign nations increasingly resent the extraordinary power enjoyed by the US through the position of the dollar as the global reserve currency, central to international finance, trade, and payments. In response, non-Americans are seeking to reduce the dominance of the US dollar. Retaliatory prosecutions of American businesses are possible. Negotiation of closer trade and financial relationships will be detrimentally affected. In 2015, the EU commenced action against Google relating to alleged abuse of its dominance of Internet search engines.

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While US energy independence is not likely in the near term, and the benefits from shale gas are overstated, increased domestic production provides America with a significant advantage in the form of competitive fuel and power costs. With no clear replacement available, the US dollar is likely to continue as the world's reserve currency, with a dominant share of global trade and investments. The US borrows in its own currency, benefiting from a ready market for its securities, both domestically and internationally. Over US$6 trillion of Treasury bonds are held by foreign investors, mainly in China, Japan, elsewhere in Asia, and the Middle East.

Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace by Matthew C. Klein

Alan Greenspan, Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, Berlin Wall, Bernie Sanders, Branko Milanovic, Bretton Woods, British Empire, business climate, business cycle, capital controls, centre right, collective bargaining, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, deglobalization, deindustrialization, Deng Xiaoping, Donald Trump, Double Irish / Dutch Sandwich, Fall of the Berlin Wall, falling living standards, financial innovation, financial repression, fixed income, full employment, George Akerlof, global supply chain, global value chain, Great Leap Forward, high-speed rail, illegal immigration, income inequality, intangible asset, invention of the telegraph, joint-stock company, land reform, Long Term Capital Management, low interest rates, Malcom McLean invented shipping containers, manufacturing employment, Martin Wolf, mass immigration, Mikhail Gorbachev, Money creation, money market fund, mortgage debt, New Urbanism, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, open economy, paradox of thrift, passive income, reserve currency, rising living standards, Robert Shiller, Ronald Reagan, savings glut, Scramble for Africa, sovereign wealth fund, stock buybacks, subprime mortgage crisis, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, trade liberalization, Wolfgang Streeck

Outside of the four biggest economies—France, Germany, the United Kingdom, and the United States—currencies issued by other governments accounted for about a third of all reserve assets. (The rest was gold bullion.) Beyond continental Europe, where the French franc and German reichsmark were more prevalent, and Canada, which held its reserves in U.S. dollars, the pound sterling was by far the dominant reserve currency. Almost all of Japan’s holdings of reserve assets in 1913, for example, took the form of financial claims issued by the U.K. government and banks, rather than gold or other foreign currencies.10 During the war, all the major powers except the United States suspended the convertibility of paper currency into physical gold.

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Americans have therefore had to bear the burden of the Europeans’ unwillingness to spend on their own domestic needs. Despite their ongoing complaints about American policy, European leaders have done nothing to change this situation. It is as if the 1960s have returned.43 Keynes’s Revenge The conventional wisdom is that it is good to be an issuer of a reserve currency, but that is a misconception grounded in psychology rather than economics. Unless the reserve issuer overwhelmingly dominates the world economy, there will always be conflicts between its domestic needs and the global demand for reserve assets. For more than six decades, the United States has satiated savers in the rest of the world at the expense of its own workers.

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That decision—which Keynes vigorously opposed as an economic adviser to the U.K. government—came at the expense of British industry. British exports were about 25 percent lower throughout the 1920s than they were in 1913, while artificially cheap imports displaced domestic production. British workers endured nearly a decade of extremely high unemployment. Issuing one of the world’s major reserve currencies was no privilege for them. But things changed in the period from 1930 to 1932, when the British public voted to place domestic concerns above international responsibilities. The United Kingdom abandoned its international commitments, devalued its currency against gold, lowered domestic interest rates, and imposed tariffs, after which the country quickly closed the gap in living standards that had emerged in the 1920s between it and the rest of the rich world.44 Before then, the British government had deliberately imposed pain on its own citizens to maintain the status of the pound sterling.

Magic Internet Money: A Book About Bitcoin by Jesse Berger

Alan Greenspan, barriers to entry, bitcoin, blockchain, Bretton Woods, Cambridge Analytica, capital controls, carbon footprint, correlation does not imply causation, cryptocurrency, diversification, diversified portfolio, Ethereum, ethereum blockchain, fiat currency, Firefox, forward guidance, Fractional reserve banking, George Gilder, inflation targeting, invisible hand, Johann Wolfgang von Goethe, liquidity trap, litecoin, low interest rates, Marshall McLuhan, Metcalfe’s law, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Nixon shock, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, planned obsolescence, price mechanism, Ralph Waldo Emerson, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Robert Metcalfe, Satoshi Nakamoto, the medium is the message, Vitalik Buterin

As such, nations held gold in reserve to support the value of their currencies. If they wanted to create more currency, they had to acquire more gold, ensuring that the currency’s values were justified because gold vouched for its integrity. In 1971, with gold-backed US dollars serving as the world’s reserve currency, the United States unilaterally severed the convertibility of dollars to gold.5 From that point onwards, all global currencies started a journey into unchartered territory, unsupported and unrestrained by any credible reserve asset. In effect, the sound characteristics that had been conferred by gold were traded for expediency, giving countries free reign to undermine the integrity, and therefore the value, of their currencies, regardless of the consequences.

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So, in an economy that is careless in its consideration of future consequences – where currency issuance is inexpensive, rising in spite of its ability to gauge value, and where debts can be incurred without regard to repayment – why should fiat currency be considered valuable? What promise does it hold? Practically and historically speaking, fiat money’s fundamental value proposition is suspect, and its promises are seemingly empty. US MONETARY POLICY: As the world reserve currency, the US dollar settles the majority of global trade, and its monetary policies could be considered a proxy for all fiat currencies. Since the Global Financial Crisis, supply has been increasing at an unpredictable rate, and interest rates have been flatlining. As of May 2020, with the US national debt at a staggering $25 trillion (over $75,000 per American), it is worth asking – on what basis is the fiat monetary system credible?

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

"there is no alternative" (TINA), "World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Apple's 1984 Super Bowl advert, Asian financial crisis, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bond market vigilante , book value, Boris Johnson, bread and circuses, break the buck, Bretton Woods, Brexit referendum, BRICs, British Empire, business cycle, business logic, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, company town, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, dark matter, deindustrialization, desegregation, Detroit bankruptcy, Dissolution of the Soviet Union, diversification, Doha Development Round, Donald Trump, Edward Glaeser, Edward Snowden, en.wikipedia.org, energy security, eurozone crisis, Fall of the Berlin Wall, family office, financial engineering, financial intermediation, fixed income, Flash crash, forward guidance, friendly fire, full employment, global reserve currency, global supply chain, global value chain, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, high-speed rail, housing crisis, Hyman Minsky, illegal immigration, immigration reform, income inequality, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, Kenneth Rogoff, large denomination, light touch regulation, Long Term Capital Management, low interest rates, margin call, Martin Wolf, McMansion, Mexican peso crisis / tequila crisis, military-industrial complex, mittelstand, money market fund, moral hazard, mortgage debt, mutually assured destruction, negative equity, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shale / tar sands, old-boy network, open economy, opioid epidemic / opioid crisis, paradox of thrift, Peter Thiel, Ponzi scheme, Post-Keynesian economics, post-truth, predatory finance, price stability, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, race to the bottom, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, savings glut, secular stagnation, Silicon Valley, South China Sea, sovereign wealth fund, special drawing rights, Steve Bannon, structural adjustment programs, tail risk, The Great Moderation, Tim Cook: Apple, too big to fail, trade liberalization, upwardly mobile, Washington Consensus, We are the 99%, white flight, WikiLeaks, women in the workforce, Works Progress Administration, yield curve, éminence grise

Kudrin had come to announce the repayment of a large tranche of international debt still owed to the Paris Club of creditors from the bad old days of the 1990s. But he had also come to deliver a less friendly message. The dollar, Kudrin declared, was in danger of forfeiting its status as the “universal or absolute reserve currency.”34 It was simply too uncertain in value. “Whether it is the U.S. dollar exchange rate or the U.S. trade balance, it definitely causes concerns with regard to the dollar’s status as a reserve currency.” Eight years on from the humiliation of 1998, when Russia’s finance minister spoke, the markets listened. Kudrin’s words were enough to send the dollar down against the euro by almost half a cent.

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Advocates of reform argued that at the root of global financial instability was the overreliance on the dollar as a reserve currency. This conferred on America an exorbitant privilege, which it exploited irresponsibly, running up deficits and borrowing abroad. In 2009 the head of China’s central bank and a special commission of the United Nations would advance proposals for a new global currency system.33 The Russians liked the idea, and so too did the West Europeans.34 In September, Peer Steinbrück told journalists, “When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative.”35 Two months later, President Sarkozy declared ahead of the G20 summit, “I am leaving tomorrow for Washington to explain that the dollar—which after the Second World War under Bretton Woods was the only currency in the world—can no longer claim to be the only currency in the world.

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All this made the ECB the most remote of all the modern central banks.26 To call it apolitical would be a misnomer, because it, in fact, entrenched a conservative bias against inflation as the unquestionable doxa of Europe. Nor would it be fair to say that anti-inflation politics were the ECB’s only ambition. It also wanted to promote Europe as a financial center and the euro as a reserve currency, and that meant actively developing European debt markets. Specifically, it meant importing to Europe the American model of a repo market for government debt. Being able to repo government securities made them much more attractive as assets. This was a lesson that France had learned in the 1980s.

Global Financial Crisis by Noah Berlatsky

"World Economic Forum" Davos, accounting loophole / creative accounting, Alan Greenspan, asset-backed security, banking crisis, Bear Stearns, Bretton Woods, capital controls, Celtic Tiger, centre right, circulation of elites, collapse of Lehman Brothers, collateralized debt obligation, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, Glass-Steagall Act, God and Mammon, Gordon Gekko, housing crisis, illegal immigration, income inequality, low interest rates, market bubble, market fundamentalism, mass immigration, Money creation, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Ronald Reagan, Savings and loan crisis, shareholder value, social contagion, South China Sea, structural adjustment programs, subprime mortgage crisis, too big to fail, trade liberalization, transfer pricing, working poor

She also states that China would be better off working with— rather than trying to compete against—the United States. Jing Men further believes that China should focus on its own economic development. As you read, consider the following questions: 1. Since the 1970s, China’s economy has grown annually by what percentage rate? 2. With what does the head of the People’s Bank of China think a new world reserve currency will help? 3. What leads China’s development? T he 20th century was the century of the United States. Will the 21st century be the one of China? China is rising. Since its reform policy at the end of the 1970s, China’s economy has been growing at an average rate Jing Men, “World Financial Crisis: What It Means for Security,” NATO Review, May 2009.

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China is the largest source of US imports, with which it enjoyed a trade surplus of $266.3 billion in 2008. In the same year, China became the largest foreign owner of American government debt, overtaking Japan. Zhou Xiaochuan, the head of the People’s Bank of China, feels that the flaws in the international monetary system could be dealt with to a certain degree by creating a new world reserve currency. The financial crisis has further enhanced China’s importance in the world economy. It is said to have about $2 trillion in foreign currency reserves. This huge reserve of US currency contrasts sharply with the US, whose budget deficit is likely to exceed $2 trillion this year [2009]. The Chinese government’s $586 billion stimulus package demonstrated its determination to keep the crisis at bay.

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China Looks to Avoid Financial Crisis in the Future Chinese leaders are not only trying to find solutions for the problems that have occurred, but are also interested in finding out why they occurred in the first place, so as to avoid similar problems in the future. Zhou Xiaochuan, the head of the People’s Bank of China, feels that the flaws in the international monetary system could be dealt with to a certain degree by creating a new world reserve currency. His controversial idea alarmed the Americans, but was quietly welcomed by many Europeans and Asians. Although Zhou’s idea is not to replace the dominant status of the dollar in the near future, it may provoke a revolution in the international monetary system. Together with China’s rising economic power, China has also steadily increased its military expenditure, with double digit annual growth.

Inside the House of Money: Top Hedge Fund Traders on Profiting in a Global Market by Steven Drobny

Abraham Maslow, Alan Greenspan, Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, business cycle, buy and hold, buy low sell high, capital controls, central bank independence, commoditize, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, currency risk, diversification, diversified portfolio, family office, financial engineering, fixed income, glass ceiling, Glass-Steagall Act, global macro, Greenspan put, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, inverted yield curve, John Meriwether, junk bonds, land bank, Long Term Capital Management, low interest rates, managed futures, margin call, market bubble, Market Wizards by Jack D. Schwager, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, out of africa, panic early, paper trading, Paul Samuelson, Peter Thiel, price anchoring, proprietary trading, purchasing power parity, Reminiscences of a Stock Operator, reserve currency, risk free rate, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, tail risk, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, Vision Fund, yield curve, zero-coupon bond, zero-sum game

The reason that trade is attractive is that cyclically the UK economy has been weakening, while the U.S. economy has been surprisingly robust. More importantly, on a secular basis, the United Kingdom has moved from being a high-inflation country to a very low-inflation country.The UK inflation rate is strikingly low. (See Figure 6.8.) The U.S. dollar, as the reserve currency of the world, is in decline. When the British pound was the reserve currency of the world and in decline, there were periodic currency crises and an uptrend in underlying inflation, and a trend up in the relative interest rate against the rest of the world. So long UK Gilts against U.S.Treasuries is a relative value trade that fits in the macro sphere.

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On the positive side, they’re unbelievably rich in natural resources and a real comer with an unbelievably educated population.The communists had a great education system. On the United States, I’m not very positive.That could change if they start cutting these deficits. Everybody says this time it’s different, but when the world’s biggest debtor is also the world’s reserve currency, you have a problem. The only way out of deflation is through the printing press, which is problematic for the whole global financial system. China will always be an interesting story but it’s one of those places where it’s probably too good to be true. I won’t be surprised if a lot of people lose a fortune in China.The Chinese are going to do what’s good for the Chinese.

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At the moment,American politicians want the dollar to go down, they are encouraging it to go down, and they think it’s good. It is a horrible policy that has never worked for any country in the world. I suggest that your American readers be patriotic, help support the government, and sell dollars. Get your money out of the country. How low will it go? Well, the pound sterling was once the world’s reserve currency and it went down 80 percent from top to bottom.The dollar went up 400 percent against it, top to bottom, which is the other side. (See Figure 11.1.) Likewise, the Japanese yen was at 500 to the U.S. dollar after World War II. Now it’s at 100, so the yen has gone up 400 percent and the dollar has gone down 80 percent.Yet Japan is still very competitive.

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"World Economic Forum" Davos, Alan Greenspan, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Black Swan, bond market vigilante , bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, classic study, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, eat what you kill, Edward Glaeser, electricity market, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, foreign exchange controls, full employment, geopolitical risk, George Akerlof, global rebalancing, Goodhart's law, Great Leap Forward, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, long and variable lags, Long Term Capital Management, low interest rates, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, military-industrial complex, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, Paul Volcker talking about ATMs, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, systems thinking, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Instead of either a government-controlled fixed-rate system or the purely market-based clean floating of the precrisis period, the currency relations of the future will probably be closer to the 1980s model of a managed float. Within this system of floating but partially managed exchange rates, the dollar will almost certainly retain its pivotal global role. A serious challenge to the dollar’s reserve currency status is almost impossible to imagine because there is no alternative reserve currency and no reason to expect one to emerge. Those who believe that U.S. budget deficits and monetary expansion will destroy the dollar’s international status must point to another currency that is underpinned by stronger fiscal and monetary foundations.

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However nervous investors may feel about the dollar, they can sell it only by buying some other currency in which they have greater confidence. And when the prophets of doom who see the United States heading down the road to Zimbabwe are asked what other currency investors should buy in exchange for the trillions of dollars they hold, the answer is silence. Why is there no serious alternative to the dollar as an international reserve currency? The absence of serious currency competition has little, if anything, to do with America’s military hegemony, its globally dominant culture, or even the depth and sophistication of its financial markets (an argument that now looks frayed). The main reason is simply that the world has only two other very large advanced economies—the eurozone and Japan—and America, for all its problems, has generally better prospects than either.

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Currencies and Financial Relations: Will There Be a New Bretton Woods? A comprehensive reform of the global currency system has been widely demanded in the aftermath of the crisis. The French, Chinese, and many other governments have called for a new Bretton Woods and for a new international reserve currency to replace the dollar. These calls have sometimes been endorsed by such prominent U.S. and British policymakers as Paul Volcker and Gordon Brown. Yet a diminution in the international role of the dollar, or a return to the fixed currencies of the postwar period, are extremely unlikely in the decades ahead.

Pivotal Decade: How the United States Traded Factories for Finance in the Seventies by Judith Stein

1960s counterculture, accelerated depreciation, activist lawyer, affirmative action, airline deregulation, Alan Greenspan, anti-communist, Ayatollah Khomeini, barriers to entry, Berlin Wall, blue-collar work, Bretton Woods, business cycle, capital controls, centre right, collective bargaining, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, deindustrialization, desegregation, do well by doing good, Dr. Strangelove, energy security, Fall of the Berlin Wall, falling living standards, feminist movement, financial deregulation, floating exchange rates, full employment, Glass-Steagall Act, Gunnar Myrdal, guns versus butter model, Ida Tarbell, income inequality, income per capita, intermodal, invisible hand, knowledge worker, laissez-faire capitalism, Les Trente Glorieuses, liberal capitalism, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Martin Wolf, new economy, Nixon triggered the end of the Bretton Woods system, oil shale / tar sands, oil shock, open economy, Paul Samuelson, payday loans, post-industrial society, post-oil, price mechanism, price stability, Ralph Nader, RAND corporation, reserve currency, Robert Gordon, Robert Solow, Ronald Reagan, Savings and loan crisis, Simon Kuznets, strikebreaker, three-martini lunch, trade liberalization, union organizing, urban planning, urban renewal, War on Poverty, Washington Consensus, working poor, Yom Kippur War

This was obviously true for the United States, but it was also true for Germany and Japan, which depended upon the U.S. market for its exports-led growth.39 The world was awash with solutions for fixing the system, among them returning to the gold standard, creating a new reserve currency, and finding better means of addressing deficits and surpluses. But nothing was done because Europe and the United States each nursed its own grievance and failed to see the other’s complaint. The Europeans, led by the French, believed that the reserve currency role of the dollar encouraged American businessmen to buy up European industries and allowed the U.S. government to spend beyond its means. Yet they benefited from the overvalued dollar.

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The trade act was “the administration’s Holy Cause,” and “decent people are prepared to lie for it,” said Oscar Gass, an economist in FDR’s Treasury Department.37 Gass was referring to the congressional testimony of Kennedy’s cabinet—Arthur Goldberg, Orville Freeman, Luther Hodges, George Ball—all of whom stated that the United States would be the net gainer from the trade negotiations and U.S. exports to Europe would rise. Gass predicted mounting trade deficits, and then foreigners would exchange their accumulating dollars for gold. Because the U.S. dollar was in practice the reserve currency, the United States bolstered faith in the greenback by promising to exchange $35 for one ounce of gold. If too many nations got rid of their dollars, the only solution would be to raise U.S. interest rates, which would bring back the dollars but also significantly increase American unemployment.38 Seymour Harris, an economist in the Treasury Department, had other misgivings.

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Beginning in the 1950s and escalating during the 1960s, the U.S. trade surplus disappeared. That surplus “paid” for military expenditures abroad and net foreign investment. When the surplus went, the U.S. balance of payments turned negative. The deficits were financed by the creation of liabilities: dollars. The dollars became, willy-nilly, the major reserve currency, lubricating growth everywhere. In the Euro-dollar market big sums moved from one country to another in search of profit after 1958, when European currencies became convertible, meaning that they could be bought and sold freely.36 Speculators, short-term investors, moved money quickly in response to differences in national interest rates.

Keeping at It: The Quest for Sound Money and Good Government by Paul Volcker, Christine Harper

Alan Greenspan, anti-communist, Ayatollah Khomeini, banking crisis, Bear Stearns, behavioural economics, Black Monday: stock market crash in 1987, Bretton Woods, business cycle, central bank independence, corporate governance, Credit Default Swap, Donald Trump, fiat currency, financial engineering, financial innovation, fixed income, floating exchange rates, forensic accounting, full employment, Glass-Steagall Act, global reserve currency, income per capita, inflation targeting, liquidationism / Banker’s doctrine / the Treasury view, low interest rates, margin call, money market fund, Nixon shock, oil-for-food scandal, Paul Samuelson, price stability, proprietary trading, quantitative easing, reserve currency, Right to Buy, risk-adjusted returns, Ronald Reagan, Rosa Parks, Savings and loan crisis, secular stagnation, Sharpe ratio, Silicon Valley, special drawing rights, too big to fail, traveling salesman, urban planning

Williams, however, doubted that the International Monetary Fund created in Bretton Woods could sustain and enforce the new exchange-rate system. In his view, more informal cooperation would be needed, beginning with an understanding between the United States and Britain because their two currencies were globally accepted, used around the world as so-called reserve currencies. Later I spent years of my life trying to prove him wrong. I should have listened more carefully. During my second year at Harvard, I lived in a new graduate dormitory with a pretty active intellectual and social life. It was easy to get to Boston’s legendary Durgin-Park or to the Old Lobster House for an occasional good dinner for, as I recall, less than $10; or once in a great while to the infamous Old Howard burlesque house, long ago destroyed but then a hallowed Harvard tradition.

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His answer was that, yes, he could accept that result if it was the consensus of the group. That “temporary” arrangement essentially remains in place fifty years later. The world has been operating without an agreed monetary standard, with varying degrees of “floating” and “fixing,” and with the dollar still the global reserve currency. As I look back, the coda for the Bretton Woods composition was silently expressed at a private lunch in Paris one week later. Arthur Burns pleaded with George Shultz once again to work toward restoring a fixed exchange rate for the dollar. My instinctive comment, given that the dollar couldn’t possibly be stabilized unless we tackled our inflation problem, was “Then, you’d better get back to Washington and tighten money.”

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Secretary Shultz’s constructive speech helped to save the day by laying out his desire to advance the reform discussions in the Committee of Twenty. From the start of those discussions, the Europeans, with Schweitzer’s evident support, pressed hard for a system of “asset settlement.” The goal was to rule out the wide use of the dollar as a reserve currency and prevent the United States, as they saw it, from exploiting the “exorbitant privilege” that the French had denounced years earlier. Put simply, all nations would be required to settle their balance-of-payments accounts in an agreed neutral asset—presumably gold, SDRs, or some combination thereof.

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis by Stephen Leeb, Donna Leeb

Alan Greenspan, book value, Buckminster Fuller, buy and hold, currency risk, diversified portfolio, electricity market, fixed income, government statistician, guns versus butter model, hydrogen economy, income per capita, index fund, low interest rates, mortgage debt, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit motive, reserve currency, rising living standards, Ronald Reagan, shareholder value, Silicon Valley, Vanguard fund, vertical integration, Yom Kippur War, zero-coupon bond

There’s another benefit to the U.S. from having oil priced in dollars: it helps maintain the dollar as the world’s reserve currency, which loosely means that banks and corporations need the dollar more than other currencies to pay for internationally based transactions. If some other currency replaced the dollar as the world’s reserve currency, the U.S. would lose a lot of control over its economic fate. Oil sales are probably the most important of all internationally based transactions, and the willingness of oil exporters to price oil in terms of dollars is a big reason that the dollar remains the world’s reserve currency. We would argue that the chief reason oil exporters have remained so loyal to the dollar is their undoubted awareness of our military resources—again, the silently effective big stick.

The Future of Money by Bernard Lietaer

agricultural Revolution, Alan Greenspan, Alvin Toffler, banks create money, barriers to entry, billion-dollar mistake, Bretton Woods, business cycle, clean water, complexity theory, corporate raider, currency risk, dematerialisation, discounted cash flows, diversification, fiat currency, financial deregulation, financial innovation, floating exchange rates, full employment, geopolitical risk, George Gilder, German hyperinflation, global reserve currency, Golden Gate Park, Howard Rheingold, informal economy, invention of the telephone, invention of writing, John Perry Barlow, Lao Tzu, Lewis Mumford, low interest rates, Mahatma Gandhi, means of production, microcredit, Money creation, money: store of value / unit of account / medium of exchange, Norbert Wiener, North Sea oil, offshore financial centre, pattern recognition, post-industrial society, price stability, Recombinant DNA, reserve currency, risk free rate, Ronald Reagan, San Francisco homelessness, seigniorage, Silicon Valley, South Sea Bubble, The Future of Employment, the market place, the payments system, Thomas Davenport, trade route, transaction costs, trickle-down economics, two and twenty, working poor, world market for maybe five computers

Some currencies are operational only among a small group of friends (like tokens used in card games), for certain time periods (like the cigarette medium of exchange among frontline soldiers during World War II), or among the citizens of one particular nation (like most 'normal' national currencies today). Such a community can be the entire global community (as is the case of the US dollar by treaty, as long as it is accepted as reserve currency), or a geographically disparate group (such as Internet participants). Finally, the key function that transforms the chosen object into a currency is its role as means of payment. Notice that the words 'means of payment' are used instead of the more traditional 'medium of exchange' (see sidebar).

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It therefore guarantees the full integration of the proposed currency in the existing market system of the 'real' economy in all its aspects. There are indeed real costs associated with storing commodities, and the sustainability Fee would simply be the cost of storing the basket of commodities agreed upon. These storage costs (and therefore the sustainability fees) have been estimated in a detailed study for a Commodity Reserve Currency at 3 to 3.5% per annum. Note that these costs are not new additional costs to the economy as a whole. They are indeed already factored in the current economy. What is proposed is simply transferring these existing costs to the bearer of the Terra, thereby giving them the useful social function of a sustainability fee.

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Bonds: Financial instrument sold by a borrower against periodic payment of interest and of the principal at maturity. Bretton Woods: Township in New Hampshire where the Bretton Woods Agreement was finalised in 1945 after negotiations mainly between the British and the US. The system agreed upon has also been called the dollar gold equivalence standard, because it gave the status of official global reserve currency to the US$, on condition that the US guaranteed the convertibility of dollars into gold on demand of other central banks, at a fixed rate of 535 per ounce. In August 1971, President Nixon unilaterally reneged on that latter clause by 'closing the gold window' when France and the UK requested such redemptions.

The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

3D printing, agricultural Revolution, Alan Greenspan, Anthropocene, Apollo 11, back-to-the-land, banking crisis, banks create money, Bear Stearns, biodiversity loss, Bretton Woods, business cycle, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, degrowth, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, global village, green transition, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, intentional community, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jevons paradox, Kenneth Rogoff, late fees, liberal capitalism, low interest rates, mega-rich, military-industrial complex, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, rolling blackouts, Ronald Reagan, short selling, special drawing rights, systems thinking, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, WikiLeaks, working poor, world market for maybe five computers, zero-sum game

In effect, the nation’s government and its central bank are together becoming the lender of last resort and the borrower of last resort — and (via the military) increasingly also both the consumer of last resort and the employer of last resort. How can the US continue to run up deficits at a sizeable proportion of GDP? If other nations did the same, the result would be currency devaluation and inflation. America can get away with it for now because the dollar is the reserve currency of the world, and so if the dollar entirely failed most or all of the global economy would go down with it. Other nations are willing to continue holding dollar-denominated debt obligations simply because they see no better alternative. Meanwhile some currency devaluation actually works to America’s advantage by making its exports more attractively priced.

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17 Currency Wars Since the economic crisis began, stresses in trade between the US and China have led to unfriendly official comments on both sides regarding the other nation’s currency. Some financial commentators suggest that “currency wars,” which might also embroil the European Union and other nations, may be in the offing, and that these could eventually turn into trade wars or even military conflicts. The US dollar, as the world’s reserve currency and as the national currency of the country leading the world into the post-growth era, appears to be central to these “money wars.” It takes a little history to understand what currency conflicts are about.18 Prior to the 20th century, most national currencies either consisted of gold or were tied to gold; therefore the currency of one nation was fairly easily convertible to that of another.

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At the Bretton Woods monetary conference of 1944 the Allied nations laid the groundwork for a postwar international economic system that included new institutions such as the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank. The US would assume a dominant role in these institutions, and the (partially) gold-backed dollar became, in effect, the world’s reserve currency. Throughout the next half-century and more, citizens and businesses in nations around the world — even in the Soviet Union — who wanted a hedge against instability in their own national currency would hoard US greenbacks. In the early 1970s, as the US borrowed heavily to finance the Vietnam War, France insisted on trading its surplus dollars for gold; this had the effect of emptying out US gold reserves.

Money: 5,000 Years of Debt and Power by Michel Aglietta

accelerated depreciation, Alan Greenspan, bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, circular economy, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, land bank, liquidity trap, low interest rates, margin call, means of production, Money creation, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, precautionary principle, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, Suez crisis 1956, the payments system, the scientific method, tontine, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

But if this mechanism was to be accepted, agreement was still needed on the nature of the asymmetries to be corrected. The Americans saw the surplus countries as responsible for the asymmetries. For the Europeans, and above all for the Germans, the system’s asymmetry owed to the dollar’s status as reserve currency. For the Germans, the rise in global inflation was the proof that imbalances were not to be treated symmetrically. There were thus no grounds for an agreement on adjustment. As for the question of international liquidity, making SDR the main reserve asset implied the possibility of substituting them for dollar assets.

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This is particularly true of the relations between the United States and the emerging economies.31 The first of these asymmetries owes to the size and the structure of national economies’ international indebtedness. Founded on a national currency, today’s monetary architecture attributes an ‘exorbitant privilege’ to the country that issues the reserve currency.32 This is because it allows it to import products and financial assets without giving anything back to the rest of the world in exchange. Following this approach, the United States could take on heavy or even almost unlimited debts in its own currency.33 Conversely, the emerging and developing countries cannot take on international debts in their own currency.

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This involves the introduction of private capital into the ownership of state enterprises and the development of a multiplicity of forms of finance, designed to encourage the rise of an innovative private sector. All this implies the need to develop financial asset markets. The second priority is to promote the yuan to the level of an international reserve currency by 2020, thus making it fully convertible. This priority forms part of China’s shifting geopolitical strategy. During the high-growth period in which China was the ‘workshop of the world’, its key means of asserting itself internationally was to expand its trade. Yet today it is rearranging its economy with a view to the enrichment of its middle classes, the development of diversified consumption habits, and the promotion of innovation, enabling it to achieve global standards.

Where Does Money Come From?: A Guide to the UK Monetary & Banking System by Josh Ryan-Collins, Tony Greenham, Richard Werner, Andrew Jackson

bank run, banking crisis, banks create money, Basel III, Big bang: deregulation of the City of London, book value, Bretton Woods, business cycle, capital controls, cashless society, central bank independence, credit crunch, currency risk, double entry bookkeeping, en.wikipedia.org, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, Goodhart's law, Hyman Minsky, inflation targeting, interest rate derivative, interest rate swap, Joseph Schumpeter, low skilled workers, market clearing, market design, market friction, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Northern Rock, offshore financial centre, Post-Keynesian economics, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, Real Time Gross Settlement, reserve currency, Ronald Reagan, seigniorage, special drawing rights, the payments system, trade route, transaction costs

Indeed, the act was repeatedly repealed – in 1847, 1857, and 1866 – to allow the Bank of England to print new notes in excess of its gold reserves to prevent massive financial collapses following bank failures (for it is far cheaper for central banks to step in and bail out banks than it is for the tax payer to do the same). Many historians attribute the Golden Period not so much to the 1844 Act as to Britain becoming the dominant world power. This underpinned the credibility of the Bank of England’s governance of the whole international monetary system through Sterling as the world’s reserve currency. It had the additional feature that the British state increasingly came to rely on issuing bonds at interest, just as the United States has been able to do through most of the twentieth century. 3.6. Twentieth century: the decline of gold, deregulation, and the rise of digital money 3.6.1.

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The pound floated freely once again.94 Other countries had either already left the gold standard or would do so soon after.95 The rigid adherence to the standard, the consequent inability for exchange rates to adjust to reflect changes in international competitiveness and the high interest rates required to defend currencies from speculative attacks have been blamed for deepening the Great Depression, with some studies finding a correlation between the length of countries’ adherence to the standard and the severity of the depression in that country.96, 97 It has also been suggested that inter-war instability was in part a result of the shift of power from the pre-war dominance of sterling to the new global reserve currency – the US dollar – and hence the de facto governance of the global financial system passing to the US Federal Reserve, which was unaccustomed to and ill-prepared for such an undertaking. Following WWII, a 20-year period of relative financial stability ensued in much of the Western world, with the Bretton Woods agreement providing a fixed exchange rate against the US dollar, which in turn was convertible into gold at a fixed price.

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* Fringe banks – or secondary banks – were individual small lenders who were not subject to banking regulations.102 † 12.5 per cent of banks deposits would have to be held in the form of ‘eligible reserve assets’, which included balances in the Bank of England, Treasury bills and money at call with the discount markets.104 * Eurodollars is the generic name for US dollar deposits held by non-US banks outside the USA and therefore outside the jurisdiction of the US Federal Reserve. This market developed from the combination of the status of the US dollar as the global reserve currency after WWII, and the desire of the Soviet Union to move its holdings out of the USA during the Cold War, as well as the build-up of dollar revenues from oil exporting countries that they preferred to hold outside the US. * Bank of England statistics: M4 (LPQAUYN) and Notes and Coins (LPMB8H4).

How Will Capitalism End? by Wolfgang Streeck

"there is no alternative" (TINA), accounting loophole / creative accounting, air traffic controllers' union, Airbnb, Alan Greenspan, basic income, behavioural economics, Ben Bernanke: helicopter money, billion-dollar mistake, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, junk bonds, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, low interest rates, market bubble, means of production, military-industrial complex, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, tacit knowledge, technological determinism, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

Moreover, local collaboration is needed to hold down traditionalist opposition to capitalist Landnahme outside the developed world. Contemporary capitalism increasingly suffers from global anarchy, as the United States is no longer able to serve in its post-war role, and a multipolar world order is nowhere on the horizon. While there are (still?) no Great-Power clashes, the dollar’s function as international reserve currency is contested – and cannot be otherwise, given the declining performance of the American economy, its rising levels of public and private debt and the recent experience of several highly destructive financial crises. The search for an international alternative, perhaps in the form of a currency basket, is getting nowhere since the United States cannot afford to give up the privilege of indebting itself in its own currency.

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In particular, the United States began to sell its public debt abroad to sovereign investors, especially to the governments of oil-producing countries looking for opportunities to ‘recycle’ their surpluses and in return gain military protection against regional adversaries and their own peoples. In subsequent years ‘financial services’ became the most important growth industry by far in both the United States and the United Kingdom.16 After the end of the Bretton Woods monetary regime, with the dollar continuing to be the leading global reserve currency, the United States enjoyed the ‘exorbitant privilege’ (Giscard d’Estaign) of being able to indebt itself internationally in its own currency and repay its debt, if need be, by printing basically unlimited amounts of it. The rich supply of fiat dollars that ensued nourished an expanding financial industry about to turn into the financial sector of capitalism worldwide.

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Bush during his presidential campaign in 2000 as ‘returning to citizens what is rightfully theirs’. Yet neither this nor the wars in Afghanistan and Iraq did anything to diminish the confidence of financial markets. The United States has more than one way to reassure its creditors, including its capacity to produce unlimited amounts of a global reserve currency out of thin air. That the American government nevertheless administered the bitter medicine of domestic austerity to its already anaemic welfare state in the 1990s can only have added to financial markets’ trust in its ‘full credit’, on top of the culturally established primacy of financial market obligations over citizen entitlements.

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, Alvin Toffler, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, Charles Babbage, classic study, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, company town, cotton gin, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, death from overwork, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, gentrification, global reserve currency, Great Leap Forward, Guggenheim Bilbao, Gunnar Myrdal, Herbert Marcuse, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, military-industrial complex, Money creation, Murray Bookchin, new economy, New Urbanism, Occupy movement, peak oil, phenotype, planned obsolescence, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, scientific management, short selling, Silicon Valley, special economic zone, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

The US dollar has functioned as the reserve currency for the global monetary system since 1945 and the USA has exclusive rights of seignorage (creation) of that money. The monetary powers of other states are circumscribed because international debts are typically denominated in US dollars and have to be paid in dollars. An individual state cannot monetise its debts by printing its own currency because the immediate effect will be to devalue the local currency against the US dollar. There are other currencies which might be used for global trade – pounds sterling (which used to be the global reserve currency), the euro and the yen and maybe in the future the Chinese yuan.

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But these have so far not threatened the position of the US dollar and occasional proposals to replace the dollar with a market-basket of currencies (of the sort that Keynes originally proposed at Bretton Woods in 1944) have so far been rebuffed by the USA. Considerable benefits accrue to the USA, after all, from its control over the global reserve currency. US imperial power has been exercised either directly or indirectly by dollar diplomacy. The hegemony of the US state in the world system is largely sustained by its control over the world currency and its ability to print money to pay, for example, for its excessive military expenditures. In the face of this, individual states may give up their role over their own currency.

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283 Maddison, Angus 227 Maghreb 174 Malcolm X 291 Maldives 260 Malthus, Thomas 229–30, 232–3, 244, 246, 251 Manchester 149, 159 Manhattan Institute 143 Mansion House, London 201 manufacturing 104, 239 Mao Zedong 291 maquilas 129, 174 Marcuse, Herbert 204, 289 market cornering 53 market economy 198, 205, 276 marketisation 243 Marshall Plan 153 Martin, Randy 194 Marx, Karl 106, 118, 122, 142, 207, 211 and alienation 125, 126, 213 in the British Museum library 4 on capital 220 conception of wealth 214 on the credit system 239 and deskilling 119 on equal rights 64 and falling profits 107 and fetishism 4 on freedom 207, 208, 213 and greed 33 ‘industrial reserve army’ 79–80 and isolation of workers 125 labour theory of value 109 and monetary system reforms 36 monopoly power and competition 135 reality and appearance 4, 5 as a revolutionary humanist 221 and social reproduction 182 and socialist utopian literature 184 and technological innovation 103 and theorists of the political left 54 and the ‘totally developed individual’ 126–7 and world crises xiii; Capital 57, 79–80, 81, 82, 119, 129, 132, 269, 286, 291–2 The Economic and Philosophic Manuscripts of 1844 269, 286 Grundrisse 97, 212–13 Theories of Surplus Value 1 Marxism contradiction between productive forces and social relations 269 ‘death of Marxism’ xii; ecologically sensitive 263 and humanism 284, 286, 287 ‘profit squeeze’ theory of crisis formation 65 traditional Marxist conception of socialism/ communism 91 Marxists 65, 109 MasterCard Priceless 275 Mau Mau movement 291 Melbourne 141 merchants 67 and industrial capital 179 price-gouging customers 54 and producers 74–5 Mercosur 159 Mexican migrants 115, 175, 195–6 Mexico 123, 129, 174 Mexico City riots (1968) x microcredit 194, 198 microfinance 186, 194, 198, 211 Microsoft 131 Middle East 124, 230 Milanovic, Branko 170 military, the capacities and powers 4 dominance 110 and technology 93, 95 ‘military-industrial complex’ 157 mind-brain duality 70 mining 94, 113, 123, 148, 239, 257 MIT (Massachusetts Institute of Technology) 292 Mitchell, David: Cloud Atlas 264 Mitchell, Timothy 122 Modern Times (film) 103 Mondragon 180 monetarism xi monetary wealth and incomes, inequalities in (1920s) x 1071 monetisation 44, 55, 60, 61, 62, 115, 192–3, 198, 235, 243, 250, 253, 261, 262 money abandonment of metallic basis of global moneys 30, 37, 109 circulation of 15, 25, 30–31, 35 coinage 15, 27, 29, 30 commodification of 57 commodity moneys 27–31 creation of 30, 51, 173, 233, 238–9, 240 credit moneys 28, 30, 31, 152 cyber moneys 36, 109–10 electronic moneys 27, 29, 35, 36, 100 and exchange value 28, 35, 38 fiat 8, 27, 30, 40, 109, 233 gap between money and the value it represents 27 global monetary system 46–7 love of money as a possession 34 measures value 25, 28 a moneyless economy 36 oxidisation of 35 paper 15, 27, 29, 30, 31, 37, 40, 45 power of 25, 36, 59, 60, 62, 65–66, 131–6, 245, 266 quasi-money 35 relation between money and value 27, 35 represented as numbers 29–30 and social labour 25, 27, 31, 42, 55, 88, 243 and the state 45–6, 51, 173 storage of value 25, 26, 35 the US dollar 46–7 use value 28 money capital 28, 32, 59, 74, 142, 147, 158, 177, 178 money laundering 54, 109 ‘money of account’ 27–8, 30 monopolisation 53, 145 monopoly, monopolies 77 and competition 131–45, 218, 295 corporate 123 monetary system 45, 46, 48, 51 monopoly power 45, 46, 51, 93, 117, 120, 132, 133–4, 136, 137, 139, 141, 142–3 monopoly pricing 72, 132 natural 118, 132 of state over legitimate use of force and violence 42, 44, 45, 51, 88, 155, 173 see also prices, monopoly monopsony 131 Monsanto 123 Montreal Protocol 254, 259 ‘moral restraints’ 229, 233 mortgages 19, 21, 28, 32, 54, 67, 82, 239 multiculturalism 166 Mumbai 155, 159 Murdoch, Rupert xi Myrdal, Gunnar 150 N NAFTA 159 name branding 31, 139 nano-trading 243 Nation of Islam 291 national debt 45, 226, 227 National Health Service 115 National Labor Relations Board 120 National Security Administration 136 nationalisation 50 nationalism 7, 8, 44, 289 natural resources 58, 59, 123, 240, 241, 244, 246, 251 nature 56 alienation from 263 capital’s conception of 252 capital’s relation to 246–63 commodification of 59 domination of 247, 272 Heidegger on 59, 250 Polanyi on 58 power over 198 process-thing duality 73 and technology 92, 97, 99, 102 Nazis 151 neoclassical economists 109 neocolonialism 143, 201 neoliberal era 128 neoliberal ethic 277 neoliberalisation x, 48 neoliberalism xiii, 68, 72, 128, 134, 136, 176, 191, 234, 281 capitalism 266 consensus 23 counter-revolution 82, 129, 159, 165 political programme 199 politics 57 privatisation 235 remedies xi Nevada, housing in 77 ‘new economy’ (1990s) 144 New York City 141, 150 creativity 245 domestic labour in 196 income inequality 164 rental markets 22 social reproduction 195 Newton, Isaac 70 NGOs (non-governmental organisations) 189, 210, 284, 286, 287 Nike 31 Nkrumah, Kwame 291 ‘non-coincidence of interests’ 25 Nordic countries 165 North America deindustrialisation in 234 food grain exports 148 indigenous population and property rights 39 women in labour force 230 ‘not in my back yard’ politics 20 nuclear weapons 101 Nyere, Julius 291 O Obama, Barack 167 occupational safety and health 72 Occupy movement 280, 292 Ohlin Foundation 143 oil cartel 252 companies 77, 131 ‘Seven Sisters’ 131 embargo (1973) 124 ‘peak oil’ 251–2, 260 resources 123, 240, 257 oligarchy, oligarchs 34, 143, 165, 221, 223, 242, 245, 264, 286, 292 oligopoly 131, 136, 138 Olympic Games 237–8 oppositional movements 14, 162, 266–7 oppression 193, 266, 288, 297 Orwell, George 213 Nineteen Eighty-Four 202 overaccumulation 154 overheating 228 Owen, Robert 18, 184 Oxfam xi, 169–70 P Paine, Tom: Rights of Man 285 Paris 160 riots (1968) x patents 139, 245, 251 paternalism 165, 209 patriarchy 7 Paulson, Hank 47 pauperisation 104 Peabody, George 18 peasantry ix, 7, 107, 117, 174, 190, 193 revolts 202 pensions 134, 165, 230 rights 58, 67–8, 84, 134 people of colour: disposable populations 111 Pereire, Emile 239 pesticides 255, 258 pharmaceuticals 95, 121, 123, 136, 139 Philanthropic Colonialism 211 philanthropy 18, 128, 189, 190, 210–11, 245, 285 Philippines 115, 196 Picasso, Pablo 140–41, 187, 240 Pinochet, Augusto x Pittsburgh 150, 159, 258 planned obsolescence 74 plutocracy xi, xii, 91, 170, 173, 177, 180 Poland 152 Polanyi, Karl 56, 58, 60, 205–7, 210, 261 The Great Transformation 56–7 police 134 brutality 266 capacities and powers 43 powers xiii, 43, 52 repression 264, 280 surveillance and violence 264 violence 266, 280 police-state 203, 220 political economy xiv, 54, 58, 89, 97, 179–80, 182, 201, 206–9 liberal 204, 206, 209 political parties, incapable of mounting opposition to the power of capital xii political representation 183 pollutants 8, 246, 255 pollution 43, 57, 59, 60, 150, 250, 254, 255, 258 Pontecorvo, Gillo 288 Ponzi schemes 21, 53, 54, 243 population ageing 223, 230 disposable 108, 111, 231, 264 growth 107–8, 229, 230–31, 242, 246 Malthus’s principle 229–30 Portugal 161 post-structuralism xiii potlatch system 33 pounds sterling 46 poverty 229 anti-poverty organisations 286–7 and bourgeois reformism 167 and capital 176 chronic 286 eradication of 211 escape from 170 feminisation of 114 grants 107 and industrialisation 123 and population expansion 229 and unemployment 170, 176 US political movement denies assistance to the poor 292–3 and wealth 146, 168, 177, 218, 219, 243 world xi, 170 power accumulation of 33, 35 of capital xii, 36 class 55, 61, 88, 89, 97, 99, 110, 134, 135, 221, 279 computer 105 and currencies 46 economic 142, 143, 144 global 34, 170 the house as a sign of 15–16 of labour see under labour; of merchants 75 military 143 and money 25, 33, 36, 49, 59, 60, 62, 63, 65–6, 245, 266 monopoly see monopoly power; oligarchic 292 political 62, 143, 144, 162, 171, 219, 292 purchasing 105, 107 social 33, 35, 55, 62, 64, 294 state 42–5, 47–52, 72, 142, 155–9, 164, 209, 295 predation, predators 53, 54, 61, 67, 77, 84, 101, 109, 111, 133, 162, 198, 212, 254–5 price fixing 53, 118, 132 price gouging 132 Price, Richard 226, 227, 229 prices discount 133 equilibrium in 118 extortionate 84 food 244, 251 housing 21, 32, 77 land 77, 78, 150 low 132 market 31, 32 and marketplace anarchy 118 monopoly 31, 72, 139, 141 oil 251, 252 property 77, 78, 141, 150 supermarket 6 and value 31, 55–6 private equity firms 101, 162 private equity funds 22, 162 private property and the commons 41, 50, 57 and eradication of usufructuary rights 41 and individual appropriation 38 and monopoly power 134–5, 137 social bond between human rights and private property 39–40 and the state 47, 50, 58, 59, 146, 210 private property rights 38–42, 44, 58, 204, 252 and collective management 50 conferring the right to trade away that which is owned 39 decentralised 44 exclusionary permanent ownership rights 39 and externality effects 44 held in perpetuity 40 intellectual property rights 41 microenterprises endowed with 211 modification or abolition of the regime 14 and nature 250 over commodities and money 38 and state power 40–41, 42–3 underpinning home ownership 49 usufructuary rights 39 privatisation 23, 24, 48, 59, 60, 61, 84, 185, 235, 250, 253, 261, 262, 266 product lines 92, 107, 219, 236 production bourgeois 1 falling value of 107 immaterial 242 increase in volume and variety of 121 organised 2 and realisation 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 regional crises 151 workers’ dispossession of own means of 172 productivity 71, 91, 92, 93, 117, 118, 121, 125, 126, 132, 172, 173, 184, 185, 188, 220, 239 products, compared with commodities 25–6 profitability 92, 94, 98, 102, 103, 104, 106, 112, 116, 118, 125, 147, 184, 191–2, 240, 252, 253, 256, 257 profit(s) banking 54 as capital’s aim 92, 96, 232 and capital’s struggle against labour 64, 65 and competition 93 entrepreneurs 24, 104 falling 81, 107, 244 from commodity sales 71 and money capital 28 monopoly 93 rate of 79, 92 reinvestment in expansion 72 root of 63 spending of 15 and wage rates 172 proletarianisation 191 partial 175, 190, 191 ‘property bubble’ 21 property market boom (1920s) 239 growth of 50 property market crashes 1928 x, 21 1973 21 2008 21–2, 54, 241 property rights 39, 41, 93, 135 see also intellectual property rights; private property property values 78, 85, 234 ‘prosumers’ 237 Proudhon, Pierre-Joseph 183 Prozac 248 public goods 38 public utilities 23, 60, 118, 132 Q quantitative easing 30, 233 R R&D ix race 68, 116, 165, 166, 291 racial minorities 168 racialisation 7, 8, 62, 68 racism 8 Rand, Ayn 200 raw materials 16, 17, 148, 149, 154 Reagan, Ronald x, 72 Speech at Westminster 201 Reagan revolution 165–166 realisation, and production 67, 79–85, 106, 107, 108, 173, 177, 179, 180, 221, 243 reality contradiction between reality and appearance 4–6 social 27 Reclus, Elisée 140 regional development 151 regional volatility 154 Reich, Robert 123, 188 religion 7 religious affiliation 68 religious hatreds and discriminations 8 religious minorities 168 remittances 175 rent seeking 132–3, 142 rentiers 76, 77, 78, 89, 150, 179, 180, 241, 244, 251, 260, 261, 276 rents xii, 16–19, 22, 32, 54, 67, 77, 78, 84, 123, 179, 241 monopoly 93, 135, 141, 187, 251 repression 271, 280 autocratic 130 militarised 264 police-state 203 violent 269, 280, 297 wage 158, 274 Republican Party (US) 145, 280 Republicans (US) 167, 206 res nullius doctrine 40 research and development 94, 96, 187 ‘resource curse’ 123 resource scarcity 77 revolution, Fanon’s view of 288 revolutionary movements 202, 276 Ricardo, David 122, 244, 251 right, the ideological and political assault on the left xii; response to universal alienation 281 ‘rights of man’ 40, 59, 213 Rio de Janeiro 84 risk 17, 141, 162, 219, 240 robbery 53, 57, 60, 63, 72 robotisation 103, 119, 188, 295 Rodney, Walter 291 romantic movement 261 Roosevelt, Theodore 131, 135 Four Freedoms 201 Rousseau, Jean-Jacques 213, 214 Ruhr, Germany 150 rural landscapes 160–61 Russia 154 a BRIC country 170, 228 collapse of (1989) 165 financial crisis (1998) 154, 232 indebtedness 152 local famine 124 oligarchs take natural resource wealth 165 S ‘S’ curve 225, 230–31 Saint-Simon, Claude de Rouvroy, comte de 183 sales 28, 31, 187, 236 San Francisco 150 Santiago, Chile: street battles (2006–) 185 Sao Paulo, Brazil 129, 195 savings the house as a form of saving 19, 22, 58 loss of 20, 58 private 36 protecting the value of 20 Savings and Loan Crisis (USA from 1986) 18 savings accounts 5, 6 Scandinavia 18, 85, 165 scarcity 37, 77, 200, 208, 240, 246, 260, 273 Schumpeter, Joseph 98, 276 science, and technology 95 Seattle 196 Second Empire Paris 197 Second World War x, 161, 234 Securities and Exchange Commission 120, 195 security xiii, 16, 121, 122, 165, 205, 206 economic 36, 153 food 253, 294, 296 job 273 national 157 Sen, Amartya 208–11, 281 Development as Freedom 208–9 senior citizens 168 Seoul 84 serfdom 62, 209 sexual hatreds and discriminations 8 Shanghai 153, 160 share-cropping 62 Sheffield 148, 149, 159, 258 Shenzhen, China 77 Silicon Valley 16, 143, 144, 150 silver 27–31, 33, 37, 57, 233, 238 Simon, Julian 246 Singapore 48, 123, 150, 184, 187, 203 slavery 62, 202, 206, 209, 213, 268 slums ix, 16, 175 Smith, Adam 98, 125–6, 157, 185, 201, 204 ‘invisible hand’ 141–2 The Wealth of Nations 118, 132 Smith, Neil 248 social distinction 68, 166 social inequality 34, 110, 111, 130, 171, 177, 180, 220, 223, 266 social justice 200, 266, 268, 276 social labour 53, 73, 295 alienated 64, 66, 88 and common wealth 53 creation of use values through 36 expansion of total output 232 household and communal work 296 immateriality of 37, 233 and money 25, 27, 31, 42, 55, 88, 243 productivity 239 and profit 104 and value 26, 27, 29, 104, 106, 107, 109 weakening regulatory role of 109, 110 social media 99, 136, 236–7, 278–9 social movements 162–3 social reproduction 80, 127, 182–98, 218, 219, 220, 276 social security 36, 165 social services 68 social struggles 156, 159, 165, 168 social value 26, 27, 32, 33, 55, 172, 179, 241, 244, 268, 270 socialism 215 democratic xii; ‘gas and water’ 183 socialism/communism 91, 269 socialist revolution 67 socialist totalitarianism 205 society capitalist 15, 34, 81, 243, 259 civil 92, 122, 156, 185, 189, 252 civilised 161, 167 complex 26 demolition of 56 and freedom 205–6, 210, 212 hope for a better society 218 industrial 205 information 238 market 204 post-colonial 203 pre-capitalist 55 primitive 57 radical transformation of 290 status position in 186 theocratic 62 women in 113 work-based 273 world 204 soil erosion 257 South Africa 84–5, 152, 169 apartheid 169, 202, 203 South Asia labour 108 population growth 230 software programmers and developers 115, 116 South Korea 123, 148, 150, 153 South-East Asia 107–8 crisis (1997–8) 154, 232, 241 sovereign debt crises 37 Soviet Bloc, ex-, labour in 107 Soviet Union 196, 202 see also Russia Spain xi, 51, 161 housing market crash (2007–9) 82–3 spatio-temporal fixes 151–2, 153, 154, 162 spectacle 237–8, 242, 278 speculative bubbles and busts 178 stagnation xii, 136, 161–2, 169 Stalin, Joseph 70 standard of life 23, 175 starvation 56, 124, 246, 249, 260, 265 state, the aim of 156–7 brutality 266, 280 and capital accumulation 48 and civil society 156 curbing the powers of capital as private property 47 evolution of the capitalist state 42 and externality effects 44 guardian of private property and of individual rights 42 and home ownership 49–50 interstate system 156, 157 interventionism 193, 205 legitimate use of violence 42, 44, 45, 51, 88, 155, 173 loss of state sovereignty xii; and money 1, 45–6, 51, 173 ‘nightwatchman’ role 42, 50 powers of 42–5, 47–52, 57–8, 65, 72, 142, 155–9, 209, 295 and private property 47, 50, 58, 59, 146, 210 provision of collective and public goods 42–3 a security and surveillance state xiii; social democratic states 85 war aims 44 state benefits 165 state regulatory agencies 101 state-finance nexus 44–5, 46–7, 142–3, 156, 233 state-private property nexus 88–9 steam engine, invention of the 3 steel industry 120, 121, 148, 188 steel production 73–4 Stiglitz, Joseph 132–4 stock market crash (1929) x Stockholm, protests in (2013) 171, 243 strikes 65, 103, 124 sub-prime mortgage crisis 50 suburbanisation 253 supply and demand 31, 33, 56, 106 supply chain 124 supply-side remedies xi supply-side theories 82, 176 surplus value 28, 40, 63, 73, 79–83, 172, 239 surveillance xiii, 94, 121, 122, 201, 220, 264, 280, 292 Sweden 166, 167 protests in (2013) 129, 293 Sweezy, Paul 136 swindlers, swindling 45, 53, 57, 239 ‘symbolic analysts’ 188 Syntagma Square, Athens 266, 280 T Tahrir Square, Cairo 266 Taipei, Taiwan 153 Taiwan 123, 150, 153 Taksim Square, Istanbul 266, 280 Tanzania 291 tariffs 137 taxation 40, 43, 47, 67, 84, 93–4, 106, 133, 150, 155, 157, 167, 168, 172, 190 Taylor, Frederick 119, 126 Taylorism 103 Tea Party faction 205, 280, 281, 292 technological evolution 95–6, 97, 101–2, 109 technological imperatives 98–101 technological innovation 94–5 technology changes involving different branches of state apparatus 93–4 communicative technologies 278–9 and competition 92–3 constraints inhibiting deployment 101 culture of 227, 271 definition 92, 248 and devaluation of commodities 234 environmental 248 generic technologies 94 hardware 92, 101 humanising 271 information 100, 147, 158, 177 military 93, 95 monetary 109 and nature 92, 97, 99, 102 organisational forms 92, 99, 101 and productivity 71 relation to nature 92 research and development 94 and science 95 software 92, 99, 101 a specialist field of business 94 and unemployment 80, 103 work and labour control 102–11 telephone companies 54, 67, 84, 278 Tennessee 148 Teresa, Mother 284 Thatcher, Margaret (later Baroness) x, 72, 214, 259 Thatcherism 165 theft 53, 60, 61, 63 Thelluson, Peter 226, 227 think tanks 143 ‘Third Italy’ 143 Third World debt crisis 240 Toffler, Alvin 237 tolls 137 Tönnies, Ferdinand 122, 125 tourism ix, 16, 140, 141, 187, 236 medical 139 toxic waste disposal 249–50, 257 trade networks 24 trade unions xii, 116, 148, 168, 176, 184, 274, 280 trade wars 154 transportation 23, 99, 132, 147–8, 150, 296 Treasury Departments 46, 156 TRIPS agreement 242 tropical rainforest 253 ‘trust-busting’ 131 trusts 135 Turin, Italy 150 Turkey 107, 123, 174, 232, 280, 293 Tuscany, Italy 150 Tutu, Archbishop Desmond 284 Twitter 236 U unemployment 37, 104, 258, 273 benefits 176 deliberately created 65, 174 high xii, 10, 176 insurance 175 and labour reserves 175, 231 and labour-saving technologies 173 long-term 108, 129 permanent 111 echnologically induced 80, 103, 173, 274 uneven geographical developments 178, 296 advanced and underserved regional economies 149–50 and anti-capitalist movements 162 asset bubbles 243 and capital’s reinvention of itself 147, 161 macroeconomic processes of 159 masking the true nature of capital 159–60 and technological forms 219 volatility in 244 United Fruit 136 United Kingdom income inequality in 169; see also Britain United Nations (UN) 285 United States aim of Tea Party faction 280 banking 158 Bill of Rights 284 Britain lends to (nineteenth century) 153 capital in (1990s) 154 Constitution 284 consumption level 194 global reserve currency 45–6 growth 232 hostility towards state interventions 167 House of Representatives 206 human rights abuses 202 imperial power 46 indebtedness of students in 194 Indian reservations 249 interstate highway system 239 jobless recoveries after recession 172–3 liberty and freedom rhetoric 200–201, 202 Midwest ‘rust belt’ 151 military expenditures 46 property market crashes x, 21–2, 50, 54, 58, 82–3 racial issues 166 Savings and Loan Crisis (from 1986) 18 social mobility 196 social reproduction 196–7 solidly capitalist 166 steel industry 120 ‘symbolic analysts’ 188 ‘trust-busting’ 131 unemployment 108 wealth distribution 167 welfare system 176 universal suffrage 183 urbanisation 151, 189, 228, 232, 239, 247, 254, 255, 261 Ure, Andrew 119 US Congress 47 US dollar 15, 30, 45–6 US Executive Branch 47 US Federal Reserve xi, 6, 30, 37, 46, 47, 49, 132, 143, 233 monetary policy 170–71 US Housing Act (1949) 18 US Treasury 47, 142, 240 use values collectively managed pool of 36 commodification of 243 commodities 15, 26, 35 common wealth 53 creation through social labour 36 and entrepreneurs 23–4 and exchange values 15, 35, 42, 44, 50, 60, 65, 88 and housing 14–19, 21–2, 23, 67 and human labour 26 infinitely varied 15 of infrastructural provision 78 loss of 58 marketisation of 243 monetisation of 243 of money 28 privatised and commodified 23 provision of 111 and revolt of the mass of the people 60 social demand for 81 usufructuary rights 39, 41, 59 usury 49, 53, 186, 194 utopianism 18, 35, 42, 51, 66, 119, 132, 183, 184, 204, 206–10, 269, 281, 282 V value(s) commodity 24, 25 failure to produce 40 housing 19, 20, 22 net 19 production and realisation of 82 production of 239 property 21 relation between money and value 27, 35 savings 20 storing 25, 26, 35 see also asset values; exchange values; social value; use values value added 79, 83 Veblen, Thorstein: Theory of the Leisure Class 274 Venezuela 123, 201 Vietnam, labour in 108 Vietnam War 290 violence 53, 57, 72, 204–5, 286 against children 193 against social movements 266 against women 193 colonial 289–90, 291 and contemporary capitalism 8 culture of 271 of dispossession 58, 59 in a dystopian world 264 and humanism 286, 289, 291 of the liberation struggle 290 militarised 292 as the only option 290–91 political 280 in pursuit of liberty and freedom 201 racialised 291 state’s legitimate use of 42, 44, 45, 51, 88, 155, 173 of technology 271 and wage labour 207 virtual ecological transfer 256 Volcker, Paul 37 W wages 103 basic social wage 103 falling 80, 82 for housework 115, 192–3 low xii, 114, 116, 186, 188 lower bound to wage levels 175 non-payment of 72 and profits 172 reduction in 81, 103, 104, 135, 168, 172, 176, 178 rising 178 and unskilled labour 114 wage demands 150, 274 wage levels pushed up by labour 65 wage rates 103, 116, 172, 173 wage repression 158–9 weekly 71 see also income Wall Street criticised by a congressional committee 239–40 illegalities practised by 72, 77 and Lebed 195 new information-processing technologies 100 Wall Street Crash (1929) x, 47 Wall-E (film) 271 Walmart xii, 75, 84, 103, 131 war on terror 280 wars 8, 60, 229 currency 154 defined 44 monetisation of state war-making activities 44–5 privatisation of war making 235 resource 154, 260 and state aims 44 state financing of 32, 44, 48 and technology 93 trade 154 world 154 water privatisation 235 wave theory 70 wave-particle duality 70 wealth accumulation of 33, 34, 35, 157, 205 creation of 132–3, 142, 214 disparities of 164–81 distribution of 34, 167 extraction from non-productive activities 32 global 34 the house as a sign of 15–16 levelling up of per capita wealth 171 and poverty 146, 168, 177, 218, 219, 243 redistribution of 9, 234, 235 social 35, 53, 66, 157, 164, 210, 251, 265, 266, 268 taking it from others 132–3 see also common wealth weather futures 60 Weber, Max 122, 125 Weimar Republic 30 welfare state 165, 190, 191, 208 Wells Fargo 61 West Germany 153, 154, 161 Whitehead, Alfred North 97 Wilson, Woodrow 201 Wolf, Martin 304n2 Wollstonecraft, Mary: A Vindication of the Rights of Woman 285 women career versus family obligations 1–2 disposable populations 111 exploitation of 193 housework versus wage labour 114–15 oppression against 193 social struggle 168 trading of 62 violence against 193 in the workforce 108, 114, 115, 127, 174, 230 women’s rights 202, 218 workers’ rights 202 working classes and capital 80 consumer power 81 crushing organisation 81 education 183, 184 gentrified working-class neighbourhoods ix; housing 160 living conditions 292 wage repression and consumption 158–9 working hours 72, 104–5, 182, 272–5, 279 World Bank 16, 24, 100, 186, 245 World Trade Organization 138, 242 WPA programmes (1930s) 151 Wright, Frank Lloyd: Falling Water 16 Wriston, Walter 240 Y YouTube 236 Yugoslavia, former 174 Z Zola, Émile 7

Why Europe Will Run the 21st Century by Mark Leonard

Berlin Wall, Celtic Tiger, continuous integration, cuban missile crisis, different worldview, European colonialism, facts on the ground, failed state, global reserve currency, Global Witness, invisible hand, knowledge economy, mass immigration, non-tariff barriers, North Sea oil, one-China policy, Panopticon Jeremy Bentham, pension reform, reserve currency, Robert Gordon, shareholder value, South China Sea, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, Washington Consensus

There are approximately 150 countries in the world that have exchange rate regimes tied to an anchor or reference currency: 51 currently use the euro, or have the euro as a major part of their reference basket.20 These still make up a small percentage of the world’s currencies, but the shift to the euro is accelerating: Russia increased its euro reserves in 2003 to approximately 25 per cent of its total reserve of $65 billion, and China has also recognized the growing importance of the euro as a reserve currency. Towards the end of 2003 rumours were circulating that the OPEC countries were considering switching the pricing of oil into euros, since the continued weakness of the dollar was substantially hurting their revenues and forcing them to increase production. Such a switch in currency pricing for the world’s largest physical commodity (12 per cent of world trade) would contribute significantly in raising the euro’s status to that of the world’s leading international currency through its increased use as a medium of exchange.

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Romano Prodi told me that when he first met the Chinese President Jiang Zemin, his Chinese interlocutor was fascinated by the euro. Apparently, his parting words were: ‘We will switch our reserves to the euro for two reasons. Why? First because we believe in multipolarity. Second, because it will be good business.’ If the euro emerges as a global reserve currency, it will give the countries of the Eurozone much greater control over their economic futures. Europe will probably not mimic the American model of using its status as one of the world’s bankers to finance a huge current account deficit, but a massive injection of capital into the European economy would undoubtedly stimulate demand.

A World in Disarray: American Foreign Policy and the Crisis of the Old Order by Richard Haass

access to a mobile phone, anti-communist, Berlin Wall, Bretton Woods, carbon footprint, carbon tax, central bank independence, colonial rule, cuban missile crisis, currency manipulation / currency intervention, deindustrialization, Doha Development Round, Donald Trump, Edward Snowden, energy security, European colonialism, failed state, Fall of the Berlin Wall, floating exchange rates, global pandemic, global reserve currency, guns versus butter model, hiring and firing, immigration reform, invisible hand, low interest rates, Mikhail Gorbachev, Monroe Doctrine, moral hazard, mutually assured destruction, no-fly zone, open economy, quantitative easing, RAND corporation, reserve currency, Ronald Reagan, South China Sea, special drawing rights, Steven Pinker, Suez crisis 1956, UNCLOS, UNCLOS, uranium enrichment, Yom Kippur War

To some extent this U.S. deficit was necessary, as it provided liquidity to the world; at the same time, it raised questions as to the future value of the dollar. Indeed, no progress was made on the tension arising from the U.S. dollar’s status as both the national currency of the United States and the global reserve currency, that is, the currency used for most international transactions, which required most countries to keep a store of it on hand. The U.S. Federal Reserve thus acted as both the country’s and the world’s central bank; the problem in the eyes of many resulted from the fact that the world had no oversight or control over the U.S. central bank or U.S. economic policy more broadly.

…

In other areas, a willingness to use military force may well be essential if terrorism is to be minimized and proliferation frustrated—although even here a degree of restraint will be required in when and how force is used. The United States needs to accept special obligations in the economic realm given the role of the dollar as the world’s de facto reserve currency. This means taking into account the views of others when deciding on interest rates or asset purchases (quantitative easing). Regular, serious consultations between the Federal Reserve and its central bank counterparts around the world are essential. Trade disputes should be taken to the WTO rather than acted on unilaterally, as well.

…

Keeping debt levels low enough to allow for a surge without triggering a debt crisis seems to be a prudent hedge and, as is the case with preventive medicine or insurance, worth paying a reasonable premium for. Let me just add one more prediction. Mounting debt will hasten the demise of the dollar as the world’s reserve currency. This will happen due to loss of confidence in U.S. financial management and the related concern that what the United States will need to do to finance its debt will be at odds with what it should be doing to manage the domestic and, indirectly, world economy. It is possible that such a move away from the dollar would have happened were it not for the EU’s problems and China not being prepared to free up the yuan.

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch

"World Economic Forum" Davos, agricultural Revolution, Airbnb, Alan Greenspan, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, business cycle, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-border payments, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, disruptive innovation, distributed ledger, Dogecoin, double entry bookkeeping, Ethereum, ethereum blockchain, facts on the ground, fake news, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, land bank, large denomination, low interest rates, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, Money creation, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, Suez canal 1869, technoutopianism, The future is already here, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

Most people, I imagine, think about money as $100 bills and gold in Fort Knox, €500 notes and plastic cards, £50 notes and the Bank of England. This is the present paradigm, so far as the public and the politicians are concerned. I think they are wrong. We are already living in the future, because the future of money began back in 1971 when the US government severed the link between the world’s reserve currency and anything physical at all (in that case, gold). We need to adjust our mental models of money and start exploring the future paradigm, both to shape it and to see where it might take us. Money existed before records began in ancient Babylon and money will continue to exist when Bitcoin is long forgotten.

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It is interesting to note that the fledgling United States, which had strongly resisted the notion of a central bank (the Federal Reserve was not created until 1913 – a direct consequence of the banking collapse of 1907), was the home of the first great monetary experiment of the industrializing world and ended up with the world’s reserve currency. So can we continue with the story of the colonies to see if we can find any useful analogy between Britain’s view of North America in the early eighteenth century and our view of the virtual world today that might tell us something about future trends in money? How about this one? A superpower is bogged down in a distant guerrilla war.

…

The IMF was designed to regulate a system of convertible currencies but the prospect of such a scheme had been punctured by the British crisis immediately following World War II. (The United Kingdom, weighed down by its wartime debts, soon distinguished itself as ‘the most persistent troublemaker within the international monetary system’.) As the world’s reserve currency, the dollar became even more central to the system. The dollar was very literally as good as gold but, since the United States developed a massive current account deficit, there were lots of foreigners with dollars and lots of those foreigners wanted actual gold. In fact they wanted gold a lot, so they would also borrow dollars and use them to buy gold.

Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

"Friedman doctrine" OR "shareholder theory", 23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, Big Tech, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, company town, compensation consultant, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, driverless car, Elon Musk, employer provided health coverage, experimental economics, Fairchild Semiconductor, fake news, Filter Bubble, financial innovation, financial intermediation, gentrification, Glass-Steagall Act, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, junk bonds, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

And so the Bretton Woods talks and the surrounding decisions created an international economic architecture with the U.S. dollar as the central reserve currency and the International Monetary Fund and World Bank as multilateral institutions to back up an overall liberal trade and currency order. Later came the General Agreement on Tariffs and Trade, which morphed into the World Trade Organization. And even after the fixed exchange rates of Bretton Woods broke down in the early 1970s, the world was still a place where the dollar was the central reserve currency and New York City the number-one banking center, today rivaled only by London, which evolved into part of the same broad Anglo-American axis for a liberal world trading order.

…

Furthermore, the fall of Britain as a world power and center of empire coincides pretty directly with the country losing its capital market heft and having to approach the International Monetary Fund to borrow money in the 1970s. The United States, by being a major financial center with a global reserve currency, can make (relatively) credible commitments abroad. When need be, America can finance a significant budget deficit; you may recall that when President Reagan “spent the Soviet Union into the ground” on military matters, he did it, for better or worse, largely with borrowed money. Because of the central financial role of New York City and other parts of the country, America has significantly more economic independence than other countries, and that translates into greater international independence.

Ten Lessons for a Post-Pandemic World by Fareed Zakaria

"there is no alternative" (TINA), 15-minute city, AlphaGo, An Inconvenient Truth, anti-fragile, Asian financial crisis, basic income, Bernie Sanders, Boris Johnson, butterfly effect, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon tax, central bank independence, clean water, cloud computing, colonial rule, contact tracing, coronavirus, COVID-19, Credit Default Swap, David Graeber, Day of the Dead, deep learning, DeepMind, deglobalization, Demis Hassabis, Deng Xiaoping, digital divide, Dominic Cummings, Donald Trump, Edward Glaeser, Edward Jenner, Elon Musk, Erik Brynjolfsson, failed state, financial engineering, Francis Fukuyama: the end of history, future of work, gentrification, George Floyd, gig economy, Gini coefficient, global pandemic, global reserve currency, global supply chain, green new deal, hiring and firing, housing crisis, imperial preference, income inequality, Indoor air pollution, invention of the wheel, Jane Jacobs, Jeff Bezos, Jeremy Corbyn, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, junk bonds, lockdown, Long Term Capital Management, low interest rates, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, means of production, megacity, Mexican peso crisis / tequila crisis, middle-income trap, Monroe Doctrine, Nate Silver, Nick Bostrom, oil shock, open borders, out of africa, Parag Khanna, Paris climate accords, Peter Thiel, plutocrats, popular capitalism, Productivity paradox, purchasing power parity, remote working, reserve currency, reshoring, restrictive zoning, ride hailing / ride sharing, Ronald Reagan, secular stagnation, Silicon Valley, social distancing, software is eating the world, South China Sea, Steve Bannon, Steve Jobs, Steven Pinker, Suez crisis 1956, TED Talk, the built environment, The Death and Life of Great American Cities, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tim Cook: Apple, trade route, UNCLOS, universal basic income, urban planning, Washington Consensus, white flight, Works Progress Administration, zoonotic diseases

So many of America’s recent efforts—from the occupation of Iraq to the simple extension of subway lines—have been costly disasters. For decades now, compared with citizens of other advanced countries, Americans have put up with a government that is second-rate at all levels. The country can compensate. Washington has the world’s reserve currency and can print trillions of dollars. It still boasts the largest military on the planet. America has a huge tech industry, dominating the digital world. The country’s vast internal market means that it can ignore many of the pressures of trade and external competition. But these are crutches.

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In the World Economic Forum’s Global Competitiveness Index, the US ranks second (to tiny Singapore). In Deloitte’s most recent rankings for Global Manufacturing Competitiveness, it nearly ties China for first place. The United States hosts a majority of the world’s largest and most technologically advanced companies. The world’s reserve currency remains the US dollar, which has only expanded its reach in recent years, now accounting for almost 90% of all currency transactions. The economist and investor Ruchir Sharma observes that if China and the US “maintained their officially reported 2019 nominal GDP growth rates—around six percent and four percent, respectively—China would not catch up to the United States until around 2050.”

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In them, he advocated a new kind of diplomacy to ensure peace among the great powers, a novel approach based on restraint, the “equal rights of all nations,” and “the love of freedom.” It wasn’t just words. Britain played a crucial role protecting global sea-lanes, while the British pound sterling served as the global reserve currency. The UK’s naval hegemony preserved a modicum of international stability. To be sure, this era still saw intense economic competition, rising powers, domestic revolutions at home, and aggressive imperialism abroad. Gladstone’s “love of freedom” was selectively applied: Britain itself was enthusiastically imperialistic, crushing rebellions from India to Ireland.

Panderer to Power by Frederick Sheehan

Alan Greenspan, Asian financial crisis, asset-backed security, bank run, banking crisis, Bear Stearns, book value, Bretton Woods, British Empire, business cycle, buy and hold, California energy crisis, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, Glass-Steagall Act, Greenspan put, guns versus butter model, inflation targeting, interest rate swap, inventory management, Isaac Newton, John Meriwether, junk bonds, low interest rates, margin call, market bubble, Mary Meeker, McMansion, Menlo Park, Michael Milken, money market fund, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, Norman Mailer, Northern Rock, oil shock, Paul Samuelson, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, Robert Solow, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, stock buybacks, stocks for the long run, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War, zero-sum game

Mullaney, “Voters Will Assess Nixon’s Game Plan to Revive Economy,” New York Times, November 1, 1970, p. 139. 5 William Greider, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon and Schuster, 1987), p. 67. 6 Ibbotson Associates, Stocks, Bonds, Bills and Inflation, 2000 Yearbook, Market Results for 1926–1999, 2000, p. 226, Table A-15. How the United States Inflated the World After the United States discarded the gold standard, the dollar remained the world’s reserve currency. Trade around the world was still conducted in dollars even though it had depreciated against most currencies. This created havoc. Exporters to the United States received the depreciated dollars for their goods. OPEC (the Organization of Petroleum Exporting Countries), an exporter of oil to the United States, received less value for each gallon of oil exported.

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Whatever claims Greenspan might make (or Paul Volcker had made) about the stability and resiliency of the American financial system, former Fed Chairman William McChesney Martin would find it unrecognizably frenetic. Finance and financial institutions were more fluid than when the gold standard existed. Alan Greenspan explained the traditional reserve currency’s balancing properties in “Gold and Economic Freedom” (discussed in Chapter 2). The world bond market increased from less than $1 trillion in 1970 to $23 trillion by 1987.24 Without a gold standard, there was no ultimate settlement, so unredeemable currency and bond claims grew. Asset inflation and concentration of credit gave those who possessed “native cunning and access to leverage” an opportunity to apply their skills.

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.: Yale University Press, 2004), p. 425. 5 There are calls today for a return to a Bretton Woods gold standard. This is posed as an agreement that worked for nearly 30 years (1944–1971). However, it was already failing in the 1950s. It was failing because the United States did not live within the limits imposed on the reserve currency. It was able to fail because, as with the CDO trade, there were no market prices. Only governments could redeem currency for gold. This led to subterfuges, which were hidden from the people when it was thought better to do so. In 1934, Simone Weil, a young French philosopher, expressed how capitalism had changed.

The Ascent of Money: A Financial History of the World by Niall Ferguson

Admiral Zheng, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, Asian financial crisis, asset allocation, asset-backed security, Atahualpa, bank run, banking crisis, banks create money, Bear Stearns, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, classic study, collateralized debt obligation, colonial exploitation, commoditize, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, deglobalization, diversification, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Glaeser, Edward Lloyd's coffeehouse, equity risk premium, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, Fractional reserve banking, Francisco Pizarro, full employment, Future Shock, German hyperinflation, Greenspan put, Herman Kahn, Hernando de Soto, high net worth, hindsight bias, Home mortgage interest deduction, Hyman Minsky, income inequality, information asymmetry, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, iterative process, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Meriwether, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour mobility, Landlord’s Game, liberal capitalism, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market fundamentalism, means of production, Mikhail Gorbachev, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, Naomi Klein, National Debt Clock, negative equity, Nelson Mandela, Nick Bostrom, Nick Leeson, Northern Rock, Parag Khanna, pension reform, price anchoring, price stability, principal–agent problem, probability theory / Blaise Pascal / Pierre de Fermat, profit motive, quantitative hedge fund, RAND corporation, random walk, rent control, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, rolling blackouts, Ronald Reagan, Savings and loan crisis, savings glut, seigniorage, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, spice trade, stocks for the long run, structural adjustment programs, subprime mortgage crisis, tail risk, technology bubble, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, transaction costs, two and twenty, undersea cable, value at risk, W. E. B. Du Bois, Washington Consensus, Yom Kippur War

This doctrinal volte-face represents a widespread disillusionment resulting from the destructive behaviour of these movements in the interwar years.54 At Bretton Woods, in New Hampshire’s White Mountains, the soon-to-be-victorious Allies met in July 1944 to devise a new financial architecture for the post-war world. In this new order, trade would be progressively liberalized, but restrictions on capital movements would remain in place. Exchange rates would be fixed, as under the gold standard, but now the anchor - the international reserve currency - would be the dollar rather than gold (though the dollar itself would notionally remain convertible into gold, vast quantities of which sat, immobile but totemic, in Fort Knox). In the words of Keynes, one of the key architects of the Bretton Woods system, ‘control of capital movements’ would be ‘a permanent feature of the post-war system’.55 Even tourists could be prevented from going abroad with more than a pocketful of currency if governments felt unable to make their currencies convertible.

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And, in so far as it allowed countries to subordinate monetary policy to the goal of full employment, it created potential conflicts even between options 2 and 3 of the trilemma. In the late 1960s, US public sector deficits were negligible by today’s standards, but large enough to prompt complaints from France that Washington was exploiting its reserve currency status in order to collect seigniorage from America’s foreign creditors by printing dollars, much as medieval monarchs had exploited their monopoly on minting to debase the currency. The decision of the Nixon administration to sever the final link with the gold standard (by ending gold convertibility of the dollar) sounded the death knell for Bretton Woods in 1971.59 When the Arab-Israeli War and the Arab oil embargo struck in 1973, most central banks tended to accommodate the price shock with easier credit, leading to precisely the inflationary crisis that General de Gaulle’s adviser Jacques Rueff had feared.60 With currencies floating again and offshore markets like the Eurobond market flourishing, the 1970s saw a revival of non-governmental capital export.

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Davis, Jefferson 93 Dawkins, Richard 356 Dearborn 242 death, causes of 183-4 debt/debts: debtors’ prisons 60 debt vs. income balance 282 moratoria 301 mountain image 71 origins of see credit securitization see securitization transferability (pay the bearer) 30 unreliability and hostility of debtors 2 decimal system 32 defence see arms deficits, government 118 deflation 106 Defoe, Daniel 145-6 Delane, John 95 Delors, Jacques 312 democracies see property-owning democracies; representative governments Department of Housing and Urban Development (HUD) 266-7 deposit insurance 57 depreciation 263 depressions 163 absence of after Second World War 164-6 Depression economics 313 see also financial crises; Great Depression Derenberg & Co. 299 derivatives 4-5 dangers of 228 ‘over-the-counter’ (OTC) 4-5 surge in 228 see also futures contracts; swaps Derry, Dr George H. 245-6 de Soto, Hernando 274-8 Detroit 234 Deuteronomy 36 developed countries 4 developing countries see emerging markets; ‘Third World’ Devonshire, Dukes of 235 diamonds 123 DiFatta, Joseph 178 ‘Disaster Capitalism Complex’ 182 disasters 6 hedge funds and 227-8 discount houses 301 discount window 164 discrezione 44 distribution curves 154-5 dividends 125 Dixon, Don 255 dollar: bills 27-8 China and 334 falling value 10 as international reserve currency 305 origin of word 25 pegs 300 dot.com mania 6. see also bubbles Douai 73 Double Eagle 319 Dow Jones Industrial Average 6 1929: 158 1987: 165-6 1995-7: 167 falls 6 and 9/11: 6 Druckenmiller, Stanley 319 drug addiction 292 Dunscombe, Thomas, MP 78 DuPont 160 Dutch East India Company see VOC Dutch East Indies 134-5 Dutch Empire 3. see also Netherlands, The; United Provinces Dutch Republic see United Provinces earthquakes 176 East Africa 38 East Asia 283. see also Asia Eastern Europe 112 East India companies 128. see also VOC East India Company (British) 129 East Indies 127 economic hit men 309-11 economies of scale and scope 352 economists: Chicago and Harvard theorists 214 economic forecasting 347 evolutionary economics 348 and Great Depression 163-4 and real humans 345 and stock market 126 Ecuador 2 Edinburgh 190-1 education 209 Japan 207 public expenditure on 220 Edward IV, King 47 Egibi family 31 Egypt 96 Eilbaum, Roberto 112 El Alto 278 El Dorado 21 electoral reform: in Britain 99 in Europe 100 see also property-owning democracies electricity industry 169-72 electronic herd see investors electronic money 29-30 El Salvador 219 emergency currency 301 emerging markets/developing countries 4 emerging market bonds 6 .

The Lords of Easy Money: How the Federal Reserve Broke the American Economy by Christopher Leonard

2021 United States Capitol attack, Affordable Care Act / Obamacare, Airbnb, Alan Greenspan, asset-backed security, bank run, banking crisis, Basel III, Bear Stearns, collateralized debt obligation, coronavirus, corporate governance, COVID-19, Donald Trump, Dutch auction, financial engineering, financial innovation, fixed income, Ford Model T, forensic accounting, forward guidance, full employment, glass ceiling, Glass-Steagall Act, global reserve currency, Greenspan put, hydraulic fracturing, income inequality, inflation targeting, Internet Archive, inverted yield curve, junk bonds, lockdown, long and variable lags, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, Money creation, mortgage debt, new economy, obamacare, pets.com, power law, proprietary trading, quantitative easing, reserve currency, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, Silicon Valley, stock buybacks, too big to fail, yield curve

The reserve accounts discussed in this book tend to be those of the primary dealers, who can sell assets to the Fed and collect new dollars in their reserve accounts. RESERVE CURRENCY: The U.S. dollar has been the global reserve currency since the end of World War II, meaning that it is the currency that nations and national banks use to conduct international transactions with one another. This is what gives the dollar its supreme place in the global economic system. In times of stress, everyone needs dollars because so much debt and trade is denominated in dollars. Being a reserve currency helps shield the dollar from market pressures faced by other national currencies, which can see their value plummet if other nations or banks decide they don’t want to own that currency any longer.

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., 153–56, 161, 270 Duke and, 125, 127–28, 142–43 early life of, 126, 151–52 economics conference speech of, 256 Fed’s image and, 286 golfing of, 167 growth of influence of, 222 Hoenig compared with, 222 Hoenig’s meeting of, 200 listening tours of, 286, 290 Mnuchin and, 275, 277–78, 299 news conference of, 236–37 normalization process and, 221, 224–25, 233, 234, 236–37, 243, 245, 256 physical appearance of, 156 political alliances of, 233 political standing of, 298 as pragmatist, 153 quantitative easing and, 121–22, 127–29, 132, 141–44, 148–49, 221–22, 236 reversal of opinion on quantitative easing and ZIRP (Powell Pivot), 225–27, 236–37 Rexnord and, 163–70, 185, 186, 199 Salomon Brothers and, 159–61 speeches of, 225–26, 256, 290 at Treasury Department, 126, 156–61, 290 Trump and, 229, 233–34 warning of, 272 wealth of, 169 Williams and, 246 Powell, Patricia, 151 Power and the Independence of the Federal Reserve, The (Conti-Brown), 132 prices of assets, see asset prices and value controls on, 62 deflation of, 96n, 223–24, 237 of gasoline, 17, 50, 54, 72, 73, 83, 84 of gold, 235 of housing, 92, 93, 100 inflation of, see inflation spread in, 268–69 of stocks, 84, 119, 131, 212, 235 primary dealer(s), 26, 101, 115–16, 285, 350 defined, 349 Salomon Brothers as, 159, 160 private equity firms, 97, 116, 122, 149, 156, 161–64, 166, 168–70, 174, 178–82, 187, 202, 221, 291 Apollo Management, 168–70, 173–74, 180, 186, 191 Carlyle Group, 126, 161–63, 165–69, 174, 178–80, 182, 185, 186 put contracts, 345–46 Fed Put, 237, 257, 272, 279, 345–46 Qualcomm, 86 quantitative easing (QE), 8–11, 114–15, 126–49, 154, 170, 173, 182, 225, 247, 249, 251, 252, 262, 292, 295, 302, 304n, 305, 344, 350–52 allocative effect of, 27, 28 asset price inflation and, 119, 132, 148, 182, 300 basic mechanics and goals of, 26 Beck on, 110 Bernanke and, 10, 25–34, 105, 112–13, 118n, 121, 126–30, 132–34, 136, 140–46, 148, 182, 247 bonds in, 101, 110, 139, 227, 231–34, 236, 267, 280 coronavirus pandemic and, 267, 279–80, 297 defined, 349 developing nations and, 216–17 difficulty of undoing, 32–33, 128, 130, 140, 143, 258 Duke and, 127–28, 141–44 end of, 147–48, 227 European Central Bank’s version of, 235 excess bank reserves and, 248 Fed’s research on, 30 Feldstein on, 133 in financial crisis of 2008, 25, 101 FOMC debates on, 9, 10, 16, 27–34, 112, 121, 126–30, 132, 134, 137, 140, 142, 143 FOMC presentation on, 136–39 FOMC voting on, 3, 8–11, 18, 21, 29, 32–34, 105, 107–9, 112, 113, 134, 136–37, 141, 148 forecasting errors and, 138–40 growth-boosting channels of, 148 Hoenig’s critiques of, 27–28, 31–33, 62, 112, 120 Hoenig’s predictions about, 34, 200 Hoenig’s public condemnation of, 29, 34 Hoenig’s vote on, 3, 8–11, 18, 21, 32, 34, 105, 107–9, 112, 258, 280 inflation and, 33, 112–13, 119–20 interest rates and, 116–19, 133, 137–39 job creation and, 119, 139, 182 media and, 108–12, 144–45 money supply and, 113, 115–16, 120–21, 177, 211 negative-interest-rate bonds and, 218 normalization (reversal) of, 221, 223–25, 227–29, 231, 233–37, 243, 245, 249, 256 as normal tool of monetary policy, 127 NQE (non-QE) program, 256–57 open-ended program of, 136, 141 open market operations and, 247–48 Operation Twist, 127, 348–49 policy options in, 128–29, 132, 136, 141 political backlash against, 144 Powell and, 121–22, 127–29, 132, 141–44, 148–49, 221–22, 236 Powell’s reversal of opinion on (Powell Pivot), 225–27, 236–37 public perceptions of, 119–20, 136 risk seesaw and, 145–46 risks of, 32–33, 130, 132, 143, 226 risky loans and, 27, 33 second round of, 32, 114–15, 118n, 144, 173, 349 stock prices and, 119, 212 Taper Tantrum and, 145–47, 217 unemployment and, 121 Yellen and, 130 quantitative tightening, 233, 237 defined, 349–50 Quarles, Randal, 229, 230, 280n Reagan, Ronald, 80, 156, 158–59 real estate, 50, 51, 55, 91, 92, 262 in Florida, 54–55, 86 quantitative easing and, 117–19 and search for yield, 214–16 see also housing real estate investment trusts (REITs), 147 recessions, 8, 22, 24, 50, 56, 60, 72, 73, 75, 80, 81, 136, 186, 225, 236, 302, 347 reconciliation, 158–59 Reddy, Sudeep, 34 Reifschneider, David, 148 relative-value funds, 253–54 repo market, 243–58, 264, 265 Republican Party, 21, 80, 101, 103, 135, 197, 201, 203, 233, 276, 304 Tea Party movement in, 14, 103, 109, 135, 206, 286 see also conservatives reserve accounts, 26 defined, 350 reserve currency, 350 revolving credit facility, 170 Rexnord, 163–70, 171–73, 176–79, 183, 185–99, 281 Adams at, 186–88, 191, 192, 194, 195, 198 Apollo Management and, 168–70, 172, 173, 186, 191 Carlyle Group and, 163, 165–69, 185, 186 closure of factory and move of production to Mexico, 196–99 Feltner at, 188–91, 196–99, 293, 295 labor unions and, 190, 194–96 Powell and, 163–70, 185, 186, 199 Rexnord Business System (RBS), 186–87 SCOFR plan of, 195–96, 198, 199 stock buyback of, 193–94 ZIRP and, 187–88 Rickards, James, 111 Riksbank, 218 risk parity funds, 265 risk seesaw, 145–46, 304, 305 Robinhood, 289, 290, 300 Roblox, 297–98 Romney, Mitt, 133 Roosevelt, Franklin Delano, 79–80, 100, 204 Rubenstein, David, 161 Russia, 85, 111, 238 Sahm, Claudia, 267, 286 Salomon Brothers, 157–61 SARS epidemic, 261, 263 Saudi Arabia, 263 Saxton, Jim, 76, 78 Secondary Market Corporate Credit Facility (SMCCF), 281 Secrets of the Temple (Greider), 47 Securities and Exchange Commission (SEC), 155, 159, 160, 162, 175, 215, 348 securitization, 63 September 11 attacks, 88, 91 S.

The Future Is Asian by Parag Khanna

3D printing, Admiral Zheng, affirmative action, Airbnb, Amazon Web Services, anti-communist, Asian financial crisis, asset-backed security, augmented reality, autonomous vehicles, Ayatollah Khomeini, barriers to entry, Basel III, bike sharing, birth tourism , blockchain, Boycotts of Israel, Branko Milanovic, British Empire, call centre, capital controls, carbon footprint, cashless society, clean tech, clean water, cloud computing, colonial rule, commodity super cycle, computer vision, connected car, corporate governance, CRISPR, crony capitalism, cross-border payments, currency peg, death from overwork, deindustrialization, Deng Xiaoping, Didi Chuxing, Dissolution of the Soviet Union, Donald Trump, driverless car, dual-use technology, energy security, European colonialism, factory automation, failed state, fake news, falling living standards, family office, financial engineering, fixed income, flex fuel, gig economy, global reserve currency, global supply chain, Great Leap Forward, green transition, haute couture, haute cuisine, illegal immigration, impact investing, income inequality, industrial robot, informal economy, initial coin offering, Internet of things, karōshi / gwarosa / guolaosi, Kevin Kelly, Kickstarter, knowledge worker, light touch regulation, low cost airline, low skilled workers, Lyft, machine translation, Malacca Straits, Marc Benioff, Mark Zuckerberg, Masayoshi Son, megacity, megaproject, middle-income trap, Mikhail Gorbachev, money market fund, Monroe Doctrine, mortgage debt, natural language processing, Netflix Prize, new economy, off grid, oil shale / tar sands, open economy, Parag Khanna, payday loans, Pearl River Delta, prediction markets, purchasing power parity, race to the bottom, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, Ronald Reagan, Salesforce, Scramble for Africa, self-driving car, Shenzhen special economic zone , Silicon Valley, smart cities, SoftBank, South China Sea, sovereign wealth fund, special economic zone, stem cell, Steve Jobs, Steven Pinker, supply-chain management, sustainable-tourism, synthetic biology, systems thinking, tech billionaire, tech worker, trade liberalization, trade route, transaction costs, Travis Kalanick, uber lyft, upwardly mobile, urban planning, Vision Fund, warehouse robotics, Washington Consensus, working-age population, Yom Kippur War

Asians are working hard to expand access to energy supplies from the Arctic, Russia, Central Asia, and Africa, as well as to invest in their own alternative and renewable energy sources such as natural gas, nuclear power, solar power, wind power, and biomass. The US dollar is still the world’s main reserve currency, but Asians have started denominating ever more trade in their own currencies, as well as shedding some of their dollar reserves. And from Amazon to Apple, US corporate profits depend considerably on sales in Asia, but Asian regulators and companies will stop at nothing to capture greater market share for themselves, both in Asia and worldwide.

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From Underwriting the United States to Financing Asia Foreign capital from the United States and Europe was a critical driver of Asia’s economic ascent during the first and second waves of East Asian growth, from Japan’s economic miracle to China’s breakneck industrialization. East Asians then lent their prodigious savings to the United States and Europe in the form of buying their Treasury bonds. Asian capital thus became a driver of the US dollar’s stability and status as a global reserve currency. China and Japan remain the two largest foreign holders of US Treasuries, with more than $1 trillion each, and Hong Kong and Taiwan also rank in the top ten with nearly $200 billion each in US dollar reserves. All of the top ten foreign holders of US dollar reserves—including Saudi Arabia, South Korea, India, and Singapore—are Asian economies, collectively holding more than 55 percent of US Treasuries.19 Furthermore, Asian foreign investment in the US economy, led by Japan, totals more than $1 trillion (compared to Europe’s $2 trillion FDI in the United States), especially in industries such as energy, manufacturing, and real estate.

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Over the past decade, the US standard of living, as measured by median income, has actually fallen, while education, health care, public safety, and other areas are weakening. According to the social psychologist Steven Pinker, the United States is “backward” compared to most of the rest of its Western peers. The exorbitant privilege of controlling the world’s leading reserve currency affords the US monetary stability despite twin deficits, but it cannot mask either the country’s deep inequalities or the lack of meaningful remedies for them.5 In politics, the United States suffers from an abundance of representation and a deficit of administration. There is a great excess in the power of representatives—congressmen and senators—and a deep shortfall in the power of administrators—governors and mayors.

Super Continent: The Logic of Eurasian Integration by Kent E. Calder

"World Economic Forum" Davos, 3D printing, air freight, Asian financial crisis, Bear Stearns, Berlin Wall, blockchain, Bretton Woods, business intelligence, capital controls, Capital in the Twenty-First Century by Thomas Piketty, classic study, cloud computing, colonial rule, Credit Default Swap, cuban missile crisis, deindustrialization, demographic transition, Deng Xiaoping, disruptive innovation, Doha Development Round, Donald Trump, energy transition, European colonialism, export processing zone, failed state, Fall of the Berlin Wall, foreign exchange controls, geopolitical risk, Gini coefficient, high-speed rail, housing crisis, income inequality, industrial cluster, industrial robot, interest rate swap, intermodal, Internet of things, invention of movable type, inventory management, John Markoff, liberal world order, Malacca Straits, Mikhail Gorbachev, mittelstand, money market fund, moral hazard, new economy, oil shale / tar sands, oil shock, purchasing power parity, quantitative easing, reserve currency, Ronald Reagan, seigniorage, Shenzhen special economic zone , smart cities, smart grid, SoftBank, South China Sea, sovereign wealth fund, special drawing rights, special economic zone, Suez canal 1869, Suez crisis 1956, supply-chain management, Thomas L Friedman, trade liberalization, trade route, transcontinental railway, UNCLOS, UNCLOS, union organizing, Washington Consensus, working-age population, zero-sum game

Those rates were to be set by reference to the price of gold and the US dollar, the key currency of the entire system, whose value was to be fixed at US$35/ounce of gold. Since the price of gold was to be fixed, nations were free to hold their international reserves in dollars, in gold, or in a limited number of alternative reserve currencies, most prominently the British pound sterling. Lord Keynes and Harry Dexter White also envisioned a multilateral body to regulate global trade, christened the International Trade Organization (ITO), to obviate the rampant protectionism that had so painfully ­exacerbated 208 chapter 10 the Great Depression of the 1930s.

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The conflict made it hard for neutral nations to engage with British banks and to settle their accounts in sterling. They consequently began looking for alternatives. After World War I, economic growth slowed while unemployment erratically spiked in Britain.38 The UK’s troubled circumstances rendered the pound sterling less and less competitive vis-à-vis the dollar as a reserve currency. Home ownership also faced new financial challenges, as Britain worked desperately to defend the gold standard, generating political pressures to back away from the key-currency role.39 Meanwhile, as Britain faced mounting difficulties in maintaining its role, an alternative began to emerge across the Atlantic.

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For more on the UK’s interwar unemployment situation, see James Denman and Paul McDonald, “Unemployment Statistics from 1881 to the Present,” Labor Market Trends, January 1996. 39. In the 1920s, the UK’s difficult domestic economic situation (falling demand, rising unemployment) made the pound less competitive vis-à-vis the dollar as a reserve currency. The British government nevertheless insisted on keeping to the gold standard, thus further weakening the strength of the pound. See Tajvan Pettinger, “The UK Economy in the 1920s,” Economics Help, October 16, 2012; and Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton, NJ: Princeton University Press, 1998), 78 – 83. 40.

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

bank run, banks create money, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, currency peg, fixed income, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, market clearing, Martin Wolf, means of production, Money creation, money market fund, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, We are all Keynesians now, Y2K