Re:

["Leigh Harkness" <Leigh@xxxxxxxxxxxxxxxxxxxx>]

Gernot

There could be another reason for the rise in foreign reserves given that
under the pure floating exchange rate system, there is no need for foreign
reserves.

When a country using the floating exchange rate system raises the foreign
reserves of the banking system (both central bank and commercial bank), then
that raise national income* and the money supply is concurrently increased.
This is a source of money that can stimulate the economy without causing
balance of payments problems.

In 1995, in Australia, there was a sudden change in central bank monetary
policy.  Since then there has been a continuous increase in the central
bank's foreign reserves and in the foreign asset holdings of the commercial
banks.  This has stimulated economic growth but it appears not to have had a
significant effect on inflation.  Nor has it contributed to excess demand
and the current account deficit.

This policy has added billions of dollars to GDP in Australia.

If central banks elsewhere have realised the benefits of such money, they
may seek to raise their foreign reserve holdings so as to stimulate their
economies. Hence, this may be the reason for the growth in foreign reserves.
It appears to have been the case in Australia.

However, I suspect that in most countries, it is more to do with the central
bank's desire to hold reserves so as to manage the exchange rate.

Regards

Leigh

*  National income is increased because either exports incomes would have to
rise to provide the foreign exchange or imports would have to fall.  If
imports fall, it means that spending has shifted to domestic products
(rather than imports) and so raised national income in that way.  In effect,
the exchange rate has been depreciated a little relative to what it would
have been if the foreign exchange market was allowed to clear.  This has
raised export incomes and/or lower payments for imports.


Its a win/win policy.








----- Original Message -----
From: "g kohler" <gktbg1@xxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Sunday, April 21, 2002 12:20 PM


> Leigh and Gunnar ? thanks for your interesting comments on Stiglitz,
?Global
> Greenbacks?.
>
> Here is some pertinent statistical information:
> (1) I checked Stiglitz?s figure of globally aggregated reserves, which he
> gives as US $1.6 trillion.
> Using World Bank data, I found a similar total of ?Gross International
Reserves?
>  (year 1995, all countries, current US $) = US$ 1.7 trillion.
> (2) Next, I compared 1995 with 1970 (not absolute figures, but reserves
> as a percent of GDP)
> The median Gross International Reserves as % of GDP (for all countries
with
> available data) are as follows:
> Median (1970) =  4.3%
> Median (1995) =  9.7%
> That suggests that reserve requirements under the bastard-Keynesian
international
> regime (1970) were substantially lower than they are under the current
global
> bastard-neoliberal regime (1995).
>
> Kind regards,
> Gernot Kohler
>
>
> You wrote:
>       > > >
>       Re: global chartalism and/or Stiglitz?
>       by Leigh Harkness
>       17 April 2002 22:11 UTC < < <
> . . . snip>
>
> Stiglitz' Global Greenbacks Idea< < <
>       > > >
>       Stiglitz' Global Greenbacks Idea
>       by Gunnar Tomasson
>       20 April 2002 20:50 UTC
> . . . snip>
>
>
>
>
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