This study assesses whether the international monetary system is already tri-polar by testing what we call China's 'dominance hypothesis', i.e. whether the renminbi already influences exchange rate ...and monetary policies strongly in Asia, a direct reference to the old 'German dominance hypothesis' which ascribed to the German mark a dominant role in Europe in the 1980s. Using a global factor model of exchange rates and a complementary event study, we find evidence that the renminbi has become a key driver of currency movements in Asia since the mid-2000s, especially since the global financial crisis, in line with China's dominance hypothesis.
This paper examines the relationship between currency internationalization and economic structure. It argues that the hierarchical and asymmetric architecture of the international monetary system ...imposes a 'survival constraint' upon non-center countries that obliges them to generate net inflows of the international center currency to finance their payment commitments. It outlines why management of this constraint has historically been associated with a development approach that prioritizes exports and investment over domestic consumption and illustrates how this development approach creates economic structure subject to path dependence and network effects, which perpetuates the role of non-center countries as users of the international currency and the role of the center country as supplier of the international currency. On this basis, it is argued that currency internationalization cannot be pursued in isolation from broader economic policy, but rather requires economic structural change, political mediation and accommodative balance of payments management. Specifically, raising the international profile of the Chinese renminbi would require rebalancing of the Chinese economy towards domestic demand, whereas the status of the US dollar is intimately intertwined with the international openness of the US economy.
The traditional endogenous money approach can be generalised substantially by including the insights of Modern Money Theory regarding the necessary coordination of fiscal and monetary policies. A ...monetarily sovereign government is composed of two entities involved in the issuance and redemption of government monetary instruments. As such, one should include the role of the Treasury in monetary policy and the role of the central bank in fiscal policy. The paper suggests a simple way to model that interaction, shows some of the theoretical insights that can be drawn from that interaction and illustrates the relevance of that interaction with the monetary and fiscal practices of the US Treasury and the Federal Reserve over the past century. Times of stress in the monetary system, such as the recent Great Recession, usually bring to light more forcefully this necessary interaction.
Concerned by the volatility of Bitcoin price growth (BPG), Bank Indonesia—Indonesia's central bank—discourages trading cryptocurrencies. We examine the relationship between Bitcoin price growth (BPG) ...and Indonesia's monetary aggregates (inflation, real exchange rate, and money velocity). In doing so, we develop the conceptual link between Bitcoin and monetary aggregates. We find strong and robust evidence that BPG leads to inflation growth, currency appreciation, and a reduction in money velocity. Our results have policy implications for other central banks in terms of achieving stability of the monetary system if BPG is indeed a concern for those countries.
•We test whether Bitcoin price growth (BPG) influences Indonesia's monetary aggregates.•We develop the conceptual link between BPG and monetary aggregates.•Robust evidence is found that BPG leads to inflation growth.•BPG contributes to currency appreciation, and a reduction in money velocity.•Results have policy implications for other central banks in terms of achieving stability.
Abstract
After the fall of the Bretton Woods system, the EU initiated an original path towards monetary integration which led to the establishment of the European monetary system (EMS) in the 1980s ...and the economic monetary union (EMU) in the 1990s. This path was an alternative to the floating exchange rate regime which many other countries decided to follow. Adopting a political economy approach, in this paper we reconstruct the main phases of this process, from the 1970s up until today, arguing that they cannot be explained only in terms of costs and benefits of alternative exchange rate configuration, but should consider political as well as economic factors—both domestic and international ones—and the interaction between European monetary and real integration. Ultimately, the predominance of political factors led to an underestimation of the economic difficulties generated by the coexistence of irrevocable exchange rates and full capital mobility. We suggest that new policy instruments and institutional changes are needed to make the common currency workable in the long run. The mandatory path should be towards a more deeply integrated Europe. Such integration is essential to enable the European monetary union to confront with future challenges.
Safe Assets as Commodity Money EDEN, MAYA; KAY, BENJAMIN S.
Journal of money, credit and banking,
September 2019, Letnik:
51, Številka:
6
Journal Article
Recenzirano
This paper presents a model in which safe assets are systemic because they are the medium of exchange in risky assets. It connects the literature from banking and finance on safe assets to the ...monetary literature on alternative monetary systems involving commodity money, interest bearing money, and private money creation. Because safe assets have intrinsic value, changes in their supply lead to changes in market efficiency. Additionally, because safe assets are costly to produce, there is overproduction of safe assets relative to the social optimum. When the model is calibrated to plausible liquidity premiums the resulting inefficiencies are not large.
Little has contributed more to the emergence of today's world of financial globalization than the setup of the international monetary system. In its current shape, it has a hierarchical structure ...with the US-Dollar (USD) at the top and various other monetary areas forming a multilayered periphery to it. A key feature of the system is the creation of USD offshore – a feature that in the 1950s and 60s developed in co-evolution with the Bretton Woods System and in the 1970s replaced it. Since the 2007–9 Financial Crisis, this ‘Offshore US-Dollar System’ has been backstopped by the Federal Reserve's network of swap lines which are extended to other key central banks. This systemic evolution may continue in the decades to come, but other systemic arrangements are possible as well and have historical precedents. This article discusses four trajectories that would lead to different setups of the international monetary system by 2040, taking into account how its hierarchical structure and the role of offshore credit money creation may evolve. In addition to a continuation of USD hegemony, we present the emergence of competing monetary blocs, the formation of an international monetary federation and the disintegration into an international monetary anarchy.
•Conformity to the system of natural relations is the benchmark adopted by Ricardo in his evaluation of alternative monetary systems.•Commodity money is at the top of his normative hierarchy because ...it equates the value of money to the natural value of gold, namely the relative price of gold for "commodities in general".•In commodity money systems, the money supply is endogenous. The quantity theory of money only comes in operation in malfunctioning systems.•Ricardo's ideal monetary model substitutes cheap paper for gold, but otherwise replicates the adjustment mechanism of commodity money.•Methodologically, this paper builds on Pasinetti's insights on the role of natural relations in Classical economists, and develops Ricardo's own type-of-economy approach to monetary analysis.
Ricardo studied the effects of alternative institutions on natural relations and ranked alternative monetary systems according to their ability to equalise the value of money to the natural value of gold. Pure commodity money is at the top of his normative hierarchy, only surpassed by his own "perfect" system. In commodity money systems, the price level is equal to the relative price of gold for "commodities in general", and money is endogenous. The quantity theory, by contrast, comes in operation in monetary system where the gold anchor is lost or works imperfectly. The supposed contradictions of Ricardo's monetary theory disappear within the interpretative framework adopted here. This framework builds on Pasinetti's insights in the role of natural values in Classical economics; develops Ricardo's own type-of-economy approach to monetary analysis; and shows that, far from being a commodity like any other, commodity money is a specific, complex institutional system.
The gist of Money and Empire by Marcello de Cecco consists in showing how discretional policy decisions, rather than automatic adjustment operating through the price-specie-flow mechanism, guaranteed ...the orderly functioning of the Gold Standard. The decades before WWI, often regarded as the heyday of the Gold Standard, were in fact the years of its decline. The paper argues that, in addition to its important contribution to the reconstruction of the actual functioning of the Gold Standard, Money and Empire prompts two reflections. The first is on the general argument of the book that all monetary systems must be studied by looking at the power relations underlying them, money being a social construct. The second concerns the use made by de Cecco of both economic facts and economic theories and his reconstruction of their reciprocal influence. Re-reading Money and Empire invites thus to reflect on the complex relations between economic theory, economic history and the history of economic ideas, fields where de Cecco moved at ease.
The aim of this study is to disentangle the effects of introducing an interest-bearing central bank digital currency (CBDC) for financial stability using a Diamond and Dybvig (1983) model in which ...(i) both CBDC and private bank deposits can be used in exchange and (ii) liquidity is created endogenously. Agents have direct access to a CBDC, which is a claim on the central bank. They use both sight deposits and CBDC to buy goods and commercial banks borrow reserves to cover liquidity needs. The introduction of an interest-bearing CBDC has direct implications for the sight deposit rate and the loan rate of banks. Besides, if the central bank aims to have a positive net worth and the absence of bank runs, a high demand for a CBDC is a necessary condition to achieve both objectives. If this is not the case, financial stability will be endangered.
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