40 years of floating money

8/13/2019 40 Years of Floating Money

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(Photo credit: Images_of_Money)

The reason we have floating currenciestoday is to enable economic management

via currency manipulation. Central banks

attempt to guide macroeconomic factors

like unemployment, economic growth,

interest rates, inflation and so forth by

jiggering the currency.

This idea is very old, and was expressed in

many forms by the Mercantilist writers of

the 1!!"1#$! period. The other idea,

e%ually ancient, is the Classical ideal of a currency that is as stable,

predictable, and free of human influence as possible. This is typicallyrepresented by a value link of some sort, either to gold, or perhaps another

major international currency.

& country that adopts a value link, such as a currency board system, gives up

any ambitions to manage the economy with Mercantilist money"tweaking

tricks.

'irtually all economists today will claim that the Mercantilist option is the

only one that is acceptable. (ndeed, all the major currencies such as the dollar,

euro and )ritish pound are managed on this basis, with a policy committee

that attempts to manage economic conditions with monetary means. There

are no gold standard currencies today.

*owever, this apparent supremacy of Mercantilist techni%ues is a bit of an

illusion. The fact of the matter is, most countries in the world today have

some variant of a Classical approach. They give up monetary management,

and have some form of value peg.

+or the time being, this has meant a link to a major international currency,

such as the dollar or euro. (f a country adopted a gold standard system today,

the result would be violent swings in exchange rates with other, floating

currencies. This is because golds value is stable, and the floating currencies

values are unstable. +or now, stability of exchange rates has taken priority.

*owever, the goal is still a Classical focus on stability, predictability, and

ECONOMICS | 12212!12 " 12:#$PM | 2%$1& 'ies

-! ears /f +loating Money, -!ears /f The &verage 0orkeretting 2oorer

Nathan Lewis% Contri*tor

I rite ao*t monetary and ta+ ,o-icy for the 21st cent*ry.

ars Of Floating Money, 40 Years Of The Average Worker Getting ... http://www.forbes.com/sites/nathanlewis/2012/12/21/40-years-of

2/1/2013


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freedom from human intervention, at least at the domestic level.

The countries of the euro3one, for example, agreed some time ago to abandon

all forms of domestic money manipulation. The euro itself is of course a

floating currency, but no one country 4 not even ermany or +rance 4 has

very much influence on the 5C).

'irtually all of 5astern 5urope, besides 6ussia, has also adopted either the

euro itself or some form of close euro peg, once again abandoning any

domestic money"manipulation strategy. 5ven 6ussia, although it has a

nominally independent central bank and currency, in practice keeps the ruble

in a close relationship with the dollar and euro.

China has had some form of a dollar peg since 178!. Today, it is something of

a crawling peg, but China too does not have significant currency

independence or much latitude for domestic money jiggering.

(n &frica, fourteen countries use a euro currency board, and another three

countries use another form of euro peg. These governments have also

embraced the Classical ideal of 9table Money, free of :domestic; human

intervention.

& handful of countries in the Caribbean use the dollar itself, a currency board

link or another form of peg, including the )ritish 'irgin (slands, Turks and

Caicos, )onair, 9aint 5ustatis and 9aba, )ermuda, the )ahamas, )arbados,

&ruba and )eli3e.

2anama, 5cuador, 5l 9alvador, 5ast Timor, the +ederates 9tates of

Micronesia and the Marshall (slandss are dollari3ed.


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This article is available online at:

http://www.forbes.com/sites/nathanlewis/2012/12/21/40-years-of-floating-money-40-years-

of-the-average-worker-getting-poorer/

ars Of Floating Money, 40 Years Of The Average Worker Getting ... http://www.forbes.com/sites/nathanlewis/2012/12/21/40-years-of

2/1/2013

40 years of floating money

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