It is probably the EMU Euro which served as a good example for the Asian nations to follow, countries sharing long centuries of rivalry are allying today, to create something which can change radically the world of tomorrow. Japan is attracted by the gravity of Asia and has ambition to change its vassal status. The context of events is hinting that both nations are preparing together to face the inevitable, The-Dollar-Crash.
Korea, China, Japan to Kickstart Single Asian Currency
$this->bbcode_second_pass_quote('', '
')Korea, China and Japan have agreed to start joint research at government level on introducing an Asian single currency comparable to the euro. Finance Minister Han Duck-soo made the agreement with his Chinese counterpart Jin Renqing and Japan’s Sadakazu Tanigaki on the sidelines of the 39th annual meeting of the Asian Development Bank in India.
PeakOil is You
ACU - Anti-american Currency Unit
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ACU - Anti-american Currency Unit
by pogoliamo » Mon 08 May 2006, 12:21:16
[url=http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_mukherjee&sid=aVreBEdY.5cg]Asia Is Getting Ready to Dump the Dollar Peg: Andy Mukherjee
[/url]
[url=http://news.tradingcharts.com/forex/4/4/78388544.html]
ASIAN MINISTERS AGREE ON CURRENCY PROTECTION ACCORD[/url]
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Re: ACU - Anti-american Currency Unit
by MacG » Mon 08 May 2006, 12:35:20
The BIS has sent some signals that this would be a Good Thing. Dont find the explicit text although I have read it. This is the closest I come:
http://www.bis.org/press/p060213a.htm
http://www.bis.org/press/p060213a.htm
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Re: ACU - Anti-american Currency Unit
by Peak_Plus » Mon 08 May 2006, 13:41:52
Au contrair.
Do you realize that the European economy is even bigger than the American, but that the Euro is still not the world's currency? BY A LONG SHOT!
The question is not whether these countries will make a currency (no big deal - even one of real size) but whether the world would use it as a world currency. Probably not. We obviously need decades to do such a thing, and of course telling events that drive us all to one currency or another. Like Peak Oil, for instance. Will PO dethrone the USD, or will it strengthen it??!! More next week on, "As the World Turns".
Do you realize that the European economy is even bigger than the American, but that the Euro is still not the world's currency? BY A LONG SHOT!
The question is not whether these countries will make a currency (no big deal - even one of real size) but whether the world would use it as a world currency. Probably not. We obviously need decades to do such a thing, and of course telling events that drive us all to one currency or another. Like Peak Oil, for instance. Will PO dethrone the USD, or will it strengthen it??!! More next week on, "As the World Turns".
This is the way the world ends,
Not with a bang but a wimper!
T.S. Eliot
Not with a bang but a wimper!
T.S. Eliot
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Re: ACU - Anti-american Currency Unit
by MrBill » Wed 10 May 2006, 05:22:09
Different currencies are preferable to having just one world currency, so long as you have different business cycles; different levels of taxation and different social models and expectations of government in turn; different levels of inflation; etc. I think it would be a mistake to try to have a one size fits everyone fiscal and monetary policy, so long as such different conditions exist in the real economies.
However, here are somethings that could facilitate a better system, which never the less will never be implemented.
1. Empower the BIS to be a true central bank of the central banks.
2. Standardize measurements of GDP between nations and then have the BIS issue national currencies (or blocks of currency as the case may be) according to official GDP to prevent any one central bank from printing too much money
3. Implement free floating foreign exchange rates and open capital markets free of capital controls between currency blocks help to let off steam and rebalance the system. Then investors could reward or punish prolific countries with severe imbalances.
4a. Restrict national governments from issuing debt in their own currency. The US would have to issue debt in euros or yen, the EU would have to issue debt in yen or dollars, and Japan would have to issue debt in euros or dollars, for example. Then if any government issued too much debt its own sovereign credit rating would go down and investors would not buy its debt. This removes moral hazard of sovereignage.
4b. If this is too draconian, then a country may be able to issue debt only up to the difference between its official budget deficit (no off-balance sheet items) and its official GDP, and then any deficit financing would have to be made in foreign currency.
Countries would issue debt wherever they got the lowest asset swap back into their own currency at prevailing market rates, and have an incentive to keep their currencies stable because they would have to eventually close those open foreign exchange positions.
Also, if there was too much euro or yen or dollar debt then investors would stop purchasing it or demand higher rates. But also countries could no longer keep their own currency too cheap to subsidize exporters or local industry and they would have to compete on a level playing field based on comparative advantage. Otherwise, the US for example could issue debt in yen and take away their cheap yen. But the Bank of Japan would not be able to print more yen to keep the export subsidy in place as the money supply is controlled by the BIS in the first place based on official GDP figures.
4.c. Issuing small amounts of local currency debt for local investors with a maturity of under one or two years could be accomodated for smoothing operations by issuing local bonds with a different ISIN/Cusip/WKN identifier than euro bonds cleared through Euroclear/Clearstream for example.
5. The BIS would have to drain money supply or add liquidity to keep the system in balance instead of the local central banks conducting money market operations. That way if the US for example issued too much debt in yen they might sterilize those yen, so not to cause inflation in Japan.
That is the outline, but of course as soon as you invent a system someone learns how to game it to their own advantage. And there is no political will to reform the system and the players will resist giving up the levers over their national economies.
However, here are somethings that could facilitate a better system, which never the less will never be implemented.
1. Empower the BIS to be a true central bank of the central banks.
2. Standardize measurements of GDP between nations and then have the BIS issue national currencies (or blocks of currency as the case may be) according to official GDP to prevent any one central bank from printing too much money
3. Implement free floating foreign exchange rates and open capital markets free of capital controls between currency blocks help to let off steam and rebalance the system. Then investors could reward or punish prolific countries with severe imbalances.
4a. Restrict national governments from issuing debt in their own currency. The US would have to issue debt in euros or yen, the EU would have to issue debt in yen or dollars, and Japan would have to issue debt in euros or dollars, for example. Then if any government issued too much debt its own sovereign credit rating would go down and investors would not buy its debt. This removes moral hazard of sovereignage.
4b. If this is too draconian, then a country may be able to issue debt only up to the difference between its official budget deficit (no off-balance sheet items) and its official GDP, and then any deficit financing would have to be made in foreign currency.
Countries would issue debt wherever they got the lowest asset swap back into their own currency at prevailing market rates, and have an incentive to keep their currencies stable because they would have to eventually close those open foreign exchange positions.
Also, if there was too much euro or yen or dollar debt then investors would stop purchasing it or demand higher rates. But also countries could no longer keep their own currency too cheap to subsidize exporters or local industry and they would have to compete on a level playing field based on comparative advantage. Otherwise, the US for example could issue debt in yen and take away their cheap yen. But the Bank of Japan would not be able to print more yen to keep the export subsidy in place as the money supply is controlled by the BIS in the first place based on official GDP figures.
4.c. Issuing small amounts of local currency debt for local investors with a maturity of under one or two years could be accomodated for smoothing operations by issuing local bonds with a different ISIN/Cusip/WKN identifier than euro bonds cleared through Euroclear/Clearstream for example.
5. The BIS would have to drain money supply or add liquidity to keep the system in balance instead of the local central banks conducting money market operations. That way if the US for example issued too much debt in yen they might sterilize those yen, so not to cause inflation in Japan.
That is the outline, but of course as soon as you invent a system someone learns how to game it to their own advantage. And there is no political will to reform the system and the players will resist giving up the levers over their national economies.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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Re: ACU - Anti-american Currency Unit
by Doly » Wed 10 May 2006, 08:27:34
$this->bbcode_second_pass_quote('MrBill', '[')b]Standardize measurements of GDP between nations
OMG! And me thinking they were standardized already! So, when you see one of those comparison tables of different countries' GDP, they are essentially meaningless?
$this->bbcode_second_pass_quote('MrBill', '
')Restrict national governments from issuing debt in their own currency. The US would have to issue debt in euros or yen, the EU would have to issue debt in yen or dollars, and Japan would have to issue debt in euros or dollars, for example.
I don't follow. If the debt is issued in foreign currency, doesn't that mean that it would generally go to foreign hands, as opposed to generally going to the hands of nationals? Is that really a good idea?
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Re: ACU - Anti-american Currency Unit
by MrBill » Wed 10 May 2006, 09:07:20
$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', '[')b]Standardize measurements of GDP between nations
OMG! And me thinking they were standardized already! So, when you see one of those comparison tables of different countries' GDP, they are essentially meaningless?
$this->bbcode_second_pass_quote('MrBill', '
')Restrict national governments from issuing debt in their own currency. The US would have to issue debt in euros or yen, the EU would have to issue debt in yen or dollars, and Japan would have to issue debt in euros or dollars, for example.
I don't follow. If the debt is issued in foreign currency, doesn't that mean that it would generally go to foreign hands, as opposed to generally going to the hands of nationals? Is that really a good idea?
The GDP numbers are not meaningless, they are just not straight forward comparisons. That is why they are often analyzed on a purchasing power parity to strip out currency effects, but GDP can also be distorted by a number of factors including the size of the informal economy; work versus leizure trade offs in the work week; the distorting effects of taxation, which might discourage official work and encourage more leizure or in fact more gray economy and tax avoidance; and other factors.
Just saying a common definition and standardized measurement procedures would be helpful like doing away with alternative measurements like GNP. Surely, the economists at the IMF or World Bank or any other of the talking clubs are up to the task of coming up with a common standard?
RE foreign debt. Many countries already are unable to plug their national accounts deficit with locally issued debt sold domestically. Simply there are not enough savings and/or the citizens do not trust their governments with their savings. So these countries are forced to issue debt in euros or yen or dollars for example. These are called eurobonds versus local government bonds.
However, as Argentina cannot use euros they need to issue the debt in euros and then swap the euros in Argentine pesos to spend domestically. They do this through an asset swap. Just like the World Bank might issue a Slovak koruna eurobond and then swap the proceeds back into dollars. Eurobonds are cleared through a clearing agency like Euroclear or Clearstream on a delivery versus payment (DVP) basis. Show me the money, then I will show you the bonds, through a trusted third party basically.
At the moment, the issuer of debt is issuing IOUs, which they hope will never be redeemed, but instead rolled over until such a time that the economy grows in real terms making the debt in nominal terms less as a percentage of economic output (GDP). This is the moral hazard of sovereignage that I spoke of.
However, if they issued debt in foreign currency, then investors would look at the issuer risk rating of the government, say Italy versus Germany, and decide Germany is a better risk, so buy German bonds in euros for less of a risk premium (yield to maturity) than the equivalent Italian bonds in euros.
Also, they would be re-assured that if the US issued debt in yen that the US would have to sell dollars and buy yen to make interest and principle payments. If the dollar goes down in value, the US has to sell more dollars to buy the same amount of yen. This removes the incentive to devalue the dollar.
And if the BIS really issued the currency, making it less of a fiat currency, as it would be backed by the size of the official GDP, then I country would have to save to meet its external debt payments instead of cranking up the printing presses as they do now.
This is the rationale behind the European Monetary Union and the euro. It removes the ability of member governments to print liras, drachmas, pesetos and escudos or issue debt in those currencies. However, the stability & growth pact was supposed to make sure that governments in the EMU did not have budget deficits above 3% or debts in excess of 60% of their GDPs. Unfortunately, many countries are now openly flaunting those Maastricht Criterion which undermines its integrity.
The morale hazard now comes from countries like Italy free riding on Germany's stability; paying lower interest rates on their prolific debts; while investors are prepared to accept lower yields because they feel that the ECB and its members will always prop up lagards instead of risking external currency instability. However, the ECB is by law prohited from bailing out any one member. Although, in practice the Bundesbank and other EU legacy central banks can buy Italian debt and support its price in the market. But this does very little to discipline Italy for its prolificagy. Another moral hazard.
If soveriegn countries, say those that belonged to the IMF or the BIS, were forced to issue foreign debt, then they would face market discipline to service those debts. Even if this was only a fraction of their total issuance, it would still inject a measure of responsibility to investors for those governments.
However, the point being that due to game theory and prisoner dilemma any one country is hesitant to make the first move. Therefore, the G11 (G7 plus Russia, China, India and Brazil) and the BIS together with the IMF might be able to force through change in its members by group pressure (like a Plaza Accord) whereas alone it would fail due to resistance by the USA or anyone stronger player with a vested interest.
But no one is going to listen to me. So really this is just an excercise in creative thinking, not a concrete proposal. I am just trying to prove that solutions exist, although they may not be perfect either, but the political will is lacking to change, not the ideas or even the institutions! ; - )
The organized state is a wonderful invention whereby everyone can live at someone else's expense.