Links. Jeroen ‘1984’ Dijsselbloem, Frances Coppola on monetary sovereignty, Richard Werner on the government and bankss
1) Jeroen ‘1984’ Dijsselbloem is head of the Eurogroup. @erikwesselius, on Twitter: “Social Democrat”@JDijsselbloem on Dutch tv: >>It’s up to Greece whether it wants to become North or south Korea<unaccountable and not bound to democratic oversight or rules which is, of course, consistent with the Varoufakis Eurogroup critique.
2) Frances Coppola has a well written piece on
government debt monetary sovereignty:
There are five principal ways in which governments can lose or relinquish sovereignty.
1. Any country in which the currency used to settle debts ((legal tender) and pay taxes is not issued by the government is not monetarily sovereign. So, for example:
- Ecuador (uses US$)
- Panama (ditto)
- Kosovo (uses Euro)
- San Marino (ditto)
- Zimbabwe (anything goes except the Zimbabwean dollar)
This category also includes all Eurozone eountries except Germany.
2. Any country which fixes the value of its currency in relation to one or more other currencies does not have monetary sovereignty UNLESS it also has strict capital controls. So, for example:
- Bulgaria (currency board to Euro)
- China (floating peg to a basket of currencies: leaky capital controls)
- Denmark (ERM II peg to Euro)
Switzerland regained monetary sovereignty when it released its Euro peg earlier this year, to the consternation of the financial markets.
3. Any country whose currency’s value is explicitly or implicitly determined by the value of a commodity does not have monetary sovereignty.
The most obvious example of this is the inter-war gold standard, whose inflexibility prevented countries such as the US from reflating their economies and thus turned a recession into a Depression. But oil exporters such as Russia and Kazakhstan also fall into this category. They have now floated their currencies, but their currencies track the oil price.
4. Any country that borrows mainly in another currency does not have monetary sovereignty even if it issues its own currency. This includes high levels of foreign-denominated external debt arising from a large trade deficit. Most hyperinflations involve countries which issue their own currencies but have very high external debt: this was certainly true of the archetypal hyperinflation, that of the Weimar republic.
5. Any country which is largely dependent on trade links to a more dominant country does not have monetary sovereignty. This is perhaps the least obvious category, but it is crucially important. The small economies of South East Asia are dependent on trade ties with China. As the external value of a currency is largely determined by trade, their currencies therefore fall or rise with the yuan even without explicit pegs
3) Richard Werner: 90 (!) slides about the quantity theory of credit. In a sense, this is about monetary sovereignty too, but paying more attention to the role of banks and (to use the phrase of Dirk Bezemer) the difference between ‘good’ credit (which stimulates expenditure on new goods and services) and ‘bad’ credit, which only serves to finance trade in existing, second hand assets. According to him, accepting that money and money creation is not only liinked to the ‘GDP’ economy (new goods and services) but also to the asset economy (existing houses…) solves quite some anomalies of mainstream economics:
1. The anomaly of the ineffectiveness of interest rate policy
2. The anomaly of banks
3. The anomaly of the recurring banking crises
4. The anomaly of the velocity decline
5. The anomaly of the inability to measure money
6. The anomaly of asset price determination
7. The anomaly of the ineffectiveness of fiscal policy
According to him, governments should for one thing change the rules (smaller banks…) to take account of the fact that much money is created to fuel asset transactions, which leads to speculative bubbles.