On Sun, 29 Apr 2001 12:34:28 -0400, Basil Moore
<bjm@xxxxxxxxxxxxxxxx> wrote,
>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.
...
>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.
...
When a country dollarizes, it ceases completely to have a balance of
payment problem vis a vis the US ... it becomes like Connecticut and
the rest of the states ... or like 1950's West Virginia and
Mississippi and the rest of the states.
I wholeheartedly agree that countries can differ widely and still
benefit from trade ... but the fact is that many countries that
differ widely in fact engage in trade that primarily benefits
one country rather than both. Certainly the full employment
conditions and equal economic power (ability to decline the trade)
that are assumed in the trade theories demonstrating this mutual
advantage must be arrived at out here in the real world -- they do
not simply happen.
What does elimination of individual currencies mean, not for
trade, but for the concentration of wealth and economic power?
What is the stake of local economic elites in the health of the
local economy when their wealth is denominated in a currency
backed by the productivity of a vast multinational productive
complex? This is already a problem in most developing countries,
ranging from serious to catastrophic -- a case of the latter is
the war in the Congo, financed by portable wealth in the shape
of diamonds, tantalum, etc. being plundered by the various
occupying powers, to finance the "rebellion" and generate a
surplus for the political elites of the invading countries.
Needless to say, economic development of the DRC is being set
back each year that this war continues.
In short, the personal advantage of political and economic
elites in many developing countries, particularly in many
African countries, is already substantially divorced from
the level of domestic economic development. Adoption of
a common currency with the US can only make this problem
worse, and it would seem to eliminate some tools that have
been used in the past (even if their use is frowned on
today) to make this problem less severe.
Virtually,
Bruce McFarling, Shortland, NSW
ecbm@xxxxxxxxxxxxxxxxxxx