McDonough on euro

[Chris Burford]

At 01/12/01 17:04 -0500, you wrote:
>Chris Burford wrote:
>
>>It does seem a remarkable statement, but can Doug or anyone else 
>>translate it?
>
>McDonough:
>
>>But should a different international monetary system ultimately emerge in
>>which other currencies, such as the euro, play an increasingly important
>>role alongside the dollar, there would be benefits for the United States as
>>well. Such a development would, for example, impose greater market-led
>>discipline on the United States and, in the process, help us address our
>>chronic low-savings problem.
>
>If the euro becomes a major international currency, the competition for 
>investments would make it harder for the U.S. to attract funds at a given 
>interest rate. The U.S. would have to adjust to lower borrowing or pay a 
>higher interest rate to keep capital coming in.
>
>>3. There are disadvantages to the USA's low savings ratio. But what can 
>>they be??
>
>Debts. Big foreign debts, and the need for $1b a day to finance the c/a 
>deficit.
>
>Doug

This would make his benign comments about the euro sound like turkeys 
voting for Christmas. But I had not realised until I checked the URL that 
this speech is 4 years old. It was presumably a reflective and reassuring 
speech that the USA has nothing to fear from the introduction of the euro, 
and that it will work together with euroland.

Nevertheless unless he was just expressing ideological conviction in the 
virtuous discipline of the market, it is hard to see how it will be 
anything but domestically painful for the USA to have to raise its low 
savings ratio.

The overall speech is very thoughful. It would be interesting to hear 
comments on how many of his predictions have now been fulfilled  since the 
euro, after all, has been operating in all but name, since Jan 1999.

http://www.newyorkfed.org/pihome/news/speeches/sp971117.html

Chris Burford

London