Re: Imposing the US Dollar on Canadacy

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

Basil,
      Well, it still seems to me that some of the
issues raised in the OCA discussions are relevant,
especially that of macro synchronization.  Thus,
we see the strains already in Euroland, with Ireland
and Portugal booming while Germany, irony of
ironies, is stagnating and whinily calling for a more
expansionary ECB policy.
      Zones that adopt common currencies, whether
the dollar or the ziggy, need to have some kind of
reasonable PPP parity when they do so or things
can really become a major mess.  I am thinking here
in particular of the one-to-one exchange of valuta marks
from the former GDR for Deutschemarks when Germany
united.  The bottom line is now clear, permanent
"Mezzogiorno" stagnation in the east with very high
unemployment.  Poland knew better and devalued the
zloty when it opened up its forex markets in 1990.
Barkley Rosser
----- Original Message -----
From: "Basil Moore" <bjm@xxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, April 29, 2001 12:34 PM
Subject: Re: Imposing the US Dollar on Canadacy


> Hi Barkley
>
> Greeting and best wishes. I am here, in South Africa, fully occupied with
> trying to finish my book. But my nose is occasionally pressed against the
> PKT pane. You have tempted me to come out of retirement:
>
> My central point on dollarization was a sudden insight that came to me
> during a long and heated discussion with Paul D. I am not sure Paul
whether
> has yet accepted this argument? Paul?? We were talking about why regions
of
> a single country do not have balance of payment problems. Paul was arguing
> the importance of centrasl government transfers of various sorts. Then it
> came to me:
>
> When a country dollarizes, it ceases completely to have balance of payment
> problems vis-a-vis the US, irrespective of differences between the two
> economies. i.e. it becomes like Connecticut and the rest of the States.
>
> As the number of countries who dollarize increase, so their balance of
> payment problems decrease. If all countries were to dollarize, we would
> have a single currency, and current account imbalances would no longer be
> of any significance. Keynes and many others have argued the case for a
> world central bank and a world currency,,e.g. Bancor. But there is
> absolutely no political possibility of countries agreeing to form a world
> central bank and a world currency in this century, so dollarization is the
> second best solution.
>
> I believe most of us think, a la Mundell, that countries must have
> reasonably similar  economies to be successful members of a single
> currency, i.e. that we can define an "Optimum Currency Area". This is the
> key point. There is no significance to an OCA.  We would all agree that
> economies can differ widely, and still benefit from trade. This is all
that
> is necessary, it is the same principle.
>
> 1.) There is the fact that all areas using the same currency must have a
> the same interest rate. This initially appears to be a huge problem for
> stabilization policy. But on reflection, it is not insuperable. Providing
> the US, as the leading country, keeps interest rates permanently low, all
> regions would benefit. Monetary policy cannot be designed for a single
> region. But this is the case within economies. Countries would have to use
> countercyclical fiscal policy to stabilize their economies.
>
> 2.) There is also the question of seigniorage, which is absolutely huge
> quantitatively, but relatively minor to eg. GDP,. It would be easy to
> design schemes to share total seigniorage gains in proportion to an agreed
> formula, e.g. GDP, or population.
>
> The key insight is that balance of payment deficits or surpluses are
SOLELY
> a monetary problem. The easiest way to see this is to imagine a single
> large branch bank. Its individual branches will have deficits or
surpluses.
> But this is of absolutely no significance or importance to the bank, since
> for all its branches together, the total must balance.
>
> Separate currencies make current account deficits important, so that a
> deficit branch is forced somehow to achieve a current account balance. The
> resulting restrictive policies undertaken give a deflationary bias to the
> world economy.
>
>
> I am putting this point of view into the open economy section of my book.
> All criticisms are greatly appreciated.
>
> All best
>
> Basil
>
>
>
> At 04:23 PM 4/22/01 -0400, you wrote:
> >       Well, I have just looked at some of the
> >speeches on this website and they are hardly
> >uniform in support of dollarization.  Guillermo
> >Calvo, who is now Chief Economist of the
> >Inter-American Bank, I believe, or some such
> >position, says that it is only viable if there is a
> >"lender of last resort," bringing up indeed the
> >spectre of a hemispheric equivalent of the
> >European Central Bank.   It is exactly such
> >concerns that lie behind the doubts and skepticism
> >of Alan Greenspan.
> >      Barry Eichengreen notes that it is only viable
> >after "a long period of internal reform" beforehand.
> >He cites positively Argentina as an example.  This
> >conference was over a year ago, and of course
> >Argentina has really fallen in the soup more recently,
> >and as I have just noted to the list, has apparently
> >now moved away from its link to the dollar.
> >      BTW, although he has been laying low in this
> >discussion, at last summer's Post Keynesian Workshop,
> >the estimable Basil Moore was advocating rather
> >vocally dollarization.  Are you out there, Basil?  As a
> >non-American, would you like to defend it in the face of
> >all these accusations of imperialism against Americans
> >who say that it is not necessarily all the slime base of evil?
> >Barkley Rosser
> >----- Original Message -----
> >From: "Alan G. Isaac" <aisaac@xxxxxxxxxxxx>
> >To: <pkt@xxxxxxxxxxxxxxxx>
> >Sent: Friday, April 20, 2001 2:37 PM
> >Subject: Re: Imposing the US Dollar on Canadacy
> >
> >
> > > > "Alan G. Isaac" wrote:
> > > >> You can be introduced to part
> > > >> of the discussion by reading the free papers at
> > > >>    http://www.dallasfed.org/htm/dallas/events/dollarspeech.html
> > >
> > > On Fri, 20 Apr 2001, John O'Donnell wrote:
> > > > Thank you, I've read the speech by Connie Mack and I am
> > > > underwhelmed by his arrogance. The rest will have to wait.
> > >
> > > But John,
> > > Why on earth would you read a *Senator's speech* to
> > > learn about *economics*??
> > > Pick one or two of the economists, please.
> > > Alan Isaac
> > >
> > >
>
>