Money creation

Rakesh Bhandari bhandari at Princeton.EDU
Wed Apr 12 00:01:36 PDT 2000

bodhhi, i don't think US is pursuing a monetarist policy per se any longer. it's true that as supplier of the key currency, the US has to make certain that other countries have some reasonable confidence that an inflationary policy which would devalue their own holdings won't recklessly be pursued. The US is thus burdened to pay an attractive interest rate aid on assets denominated in its currency, as Robt Gilpin points out. The liqudity of the US market is also a confidence builder. I don't think there is any conspiracy here, the problem remains though that high US interest rates may drain capital from investments which would be more socially rational, though not profitable from the point of view of private investors.

> I think the push
>to get stable currencies abroad has more to do with the globalization of

Yes we're going to have to get some understanding of floating exchange rates, dollarization, currency boards, pegs--and all the other pseudo solutions to deal with the gradual destruction of ever more volatile money in these twilight years of capitalism.

As a side note, I don't think US industries are as burdened by a strong dollar as they used to be. Most of the big firms have overseas operations and may beenfit from lower production costs compared with their local competitors. The costs of European and Asian firms/subsidiaries in the US would have their costs increased too.

Yours, Rakesh

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