Category Archives: Exchange Rates and Reserve Currencies

CFS Reissues Leland B. Yeager’s International Monetary Relations

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The Center for Financial Stability is pleased to reissue Leland B. Yeager’s masterly International Monetary Relations: Theory, History, and Policy. First published in 1966, it appeared in a second edition in 1976, which has long been out of print. We are making the second edition available in an inexpensive electronic version on Amazon Kindle, as well as posting a facsimile scan of the print version. Here is the CFS home page for the book.

Leland B. Yeager (1924-2018) was a prominent economist of the 20th century. He spent most of his career at the University of Virginia and Auburn University. His main contributions in economics were in money, trade, and capital theory. He had wide-ranging interests that also included ethics and artificial languages, which he wrote about. Armaan Bahl, a student of CFS Special Counselor Steve Hanke, compiled an annotated bibliography of Yeager’s writings earlier this year.

International Monetary Relations was the book Yeager was best known for during his life. It was immediately recognized as being authoritative, innovative, and clearly written, qualities that occur together less often than they should in economics. The book remains worth reading today for its deft weaving of the strands of theory, history, and policy.

At his death, Yeager was working on a second magnum opus. He entrusted it to Steve Hanke for completion, and it was recently published as Capital, Interest, and Waiting: Controversies, Puzzles, and New Additions to Capital Theory.

CFS Interviews John Williamson on the Washington Consensus, Exchange Rates, and More

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The CFS is delighted to present an interview with the eminent international economist John Williamson, reviewing his more than five decades of work in the field.

Williamson is best known for coining the term “Washington Consensus” in 1989 as a summary of the policy reforms and structural adjustment measures that the International Monetary Fund, World Bank, and U.S. Treasury advocated for emerging market economies. The term quickly gained resonance and continues to be widely used today, both as the description Williamson initially presented it as and as a prescription of what good policies should be (see the appendix to the interview).

He also worked for much of his career on “intermediate” exchange rates between the extremes of fixed and floating. The late Rüdiger Dornbusch of MIT summarized Williamson’s proposals as “BBC” – band, basket and crawl. In support of them, Williamson devised the influential concept of the “fundamental equilibrium exchange rate” (FEER).

In 2012 Williamson retired from the Peterson Institute of International Economics, where he had been a senior fellow for more than 20 years. His previous appointments included professorships in his native England, the United States, and Brazil; an advisory post at the British Treasury; and staff or management positions at the International Monetary Fund, World Bank, and United Nations.

Besides covering the major ideas of Williamson’s career as an economist, the interview offers a few glimpses into other areas of his life and reminds us of how much economic conditions have changed. He was born at home, common in his generation but now rare in rich countries. Despite being the son of a successful English businessman, he went abroad only once before adulthood, on a one-week school trip to Paris. The UK had extensive exchange controls back then, and allowances for tourism were notoriously stingy. He served his compulsory national service, another now-bygone institution, working on a nuclear attack scenario for the Royal Air Force that has a bit of a darkly comic Dr. Strangelove feel.

I interviewed Williamson with CFS research associate Robert Yee. John’s daughter Theresa gave us considerable help, for which we are grateful.

Hanke delivers John Ise Distinguished Lecture w/ Barnett interview…

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CFS Special Counselor and Johns Hopkins professor Steve Hanke delivers the John Ise Distinguished Lecture at the University of Kansas – moderated by CFS Director of Advances in Monetary and Financial Measurement and KU Oswald Distinguished Professor of Macroeconomics.

Hanke and Barnett explored monetary systems throughout the world, tariffs and their effects on trade deficits, abolishing time zones and changing the calendar, plus “everything under the sun.”  View video

State of the International Financial System: House Committee on Financial Services Hearing

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The U.S. House Committee on Financial Services announced a full committee hearing titled “The Annual Testimony of the Secretary of the Treasury on the State of the International Financial System.” The hearing is scheduled for March 17, 2015.

It will be informative to see how Secretary Lew assesses backdoor currency wars (see pages 2, 9, and 10 of the New York Society of Security Analysts presentation).

Does math support euro survival?

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CFS asked the question “Does math support euro survival?” on December 5, 2011.

Based on a quantitative approach to evaluate the relative competitiveness of nations, our view was “yes” – the euro can and should survive.

However, Greece and Portugal remain serious outliers. Their implicit currencies require serious economic adjustment or issuance of a new drachma and escudo.

Euro Components: CFS Synthetic Currency Valuations

CFS synthetically developed real effective currencies for eleven major nations within the euro. Real exchange rate movements and currency valuations for individual euro nations help answer three fundamental questions.

– Did member nation exchange rates enter the euro at an appropriate level?
– Since entry into the euro, did the unified rate hinder or help international competitiveness and growth?
– To what extent are euro members threatened by relatively overvalued currencies – or near levels consistent with currency crises in emerging market economies?

For the full report: http://www.centerforfinancialstability.org/research/LG_Euro_120511.pdf

The Economist on “The 70-Year Itch”

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In The Economist this week, there is a terrific article The Bretton Woods agreements: The 70-year itch.  Highlights include:

– America learned the benefits of economic co-operation the hard way. Its failure to create institutions to help steer the world economy after the first world war exacerbated the Great Depression and paved the way for the next conflagration.

– Yet today’s pre-eminent powers seem to have forgotten this lesson.

– If John Maynard Keynes were alive, he would sigh not just at the risks in all this economic nationalism but also the huge missed opportunity. Perhaps it is time to send another group of dignitaries to New Hampshire.

The full article is at http://www.economist.com/news/leaders/21606280-both-west-and-china-are-neglecting-institutions-help-keep-world-economy

The piece is similar to my Forbes column Lessons from the Summer of 1944.

The full column can be viewed at http://www.forbes.com/sites/greatspeculations/2014/06/06/lessons-from-the-summer-of-1944/