Credibility and adjustment: gold standards versus currency boards

It is often maintained that currency boards (CBs) and gold standards (GSs) are alike in that they are stringent monetary rules, the two basic features of which are high credibility of monetary authorities and the existence of automatic adjustment (non discretionary) mechanism. This article includes a comparative analysis of these two types of regimes both from the perspective of the sources and mechanisms of generating confidence and credibility, and the elements of operation of the automatic adjustment mechanism. Confidence under the GS is endogenously driven, whereas it is exogenously determined under the CB. CB is a much more asymmetric regime than GS (the adjustment is much to the detriment of peripheral countries) although asymmetry is a typical feature of any monetary regime. The lack of credibility is typical for peripheral countries and cannot be overcome completely even by “hard” monetary regimes.http://deepblue.lib.umich.edu/bitstream/2027.42/40078/3/wp692.pd

A General Financial Transaction Tax: A Short Cut of the Pros, the Cons and a Proposal

The idea of introducing a general financial transaction tax (FTT) has recently attracted rising attention. There are three reasons for this interest: First, the economic crisis was deepened by the instability of stock prices, exchange rates and commodity prices. This instability might be dampened by such a tax. Second, as a consequence of the crisis, the need for fiscal consolidation has tremendously increased. A FTT would provide governments with substantial revenues. Third, the dampening effects of a FTT on the real economy would be much smaller as compared to other tax measures like increasing the VAT. The paper summarises at first the six main arguments in favour and against a FTT. It then provides empirical evidence about the movements of the most important asset prices. These observations suggest that a small FTT (between 0.1 and 0.01 percent) would mitigate price volatility not only over the short run but also over the long run. At the same time, a FTT would yield substantial revenues. For Europe, revenues would amount to 1.6 percent of GDP at a tax rate of 0.05 percent (transaction volume is assumed to decline by roughly 65 percent at this rate). In the UK, tax receipts would be highest. Even if only transactions on exchanges are taxed in a first step (at a rate of 0.05 percent), a FTT would yield 3.6 percent of GDP in the UK. In Germany, FTT receipts would amount to 0.9 percent of GDP in this case. If a FTT is introduced in the UK and in Germany at the same time, neither country needs to fear a significant "emigration" of trading. This can be presumed because roughly 97 percent of all transactions on exchanges in the EU are carried out in these two countries

If You’re Going Through Hell, Keep Going: Nonlinear Effects of Financial Liberalization in Transition Economies

Copyright © Taylor & Francis Group, LLC. Did increasing the level and pace of financial liberalization during transition expose countries to crises? And if a crisis did strike, did liberalization do more harm or good? Using a database of 28 transition economies over 22 years, this article examines these questions across a host of economic outcomes, including savings and the size of the private sector. The results provide evidence that, while liberalization may initially increase the probability of a crisis, the prospect of a crisis drops dramatically at higher levels of financial openness. Moreover, the benefits of liberalization across several metrics outweigh the risks of these intermediate stages

The Political Economy of Failure: The Euro as an International Currency

How do international currencies get established and consolidated? What domestic and international political foundations support an international currency? And what kinds of macro-economic flows enable an international currency? In this essay we consider these perennial questions of modern IPE scholarship in reverse order to ask whether the euro could ever have become, or seek to become, a true international currency rivalling the US dollar, used not only for passive foreign exchange reserves but also as a major commercial currency outside the EU. We argue that the EU lacks the will, the ideas and the capacity to promote the euro into the status of an international currency. In this article, we concentrate on this final issue of capacity, as the will and ideas issues have already been well explored. Capacity is an issue coeval with, if not prior to, the first two issues. The EU's current institutional arrangements and its economic geography create macro-economic consequences that diminish the euro's capacity to operate as a top currency. These conflicts go beyond the well-recognized issue that the euro-zone is not an optimum currency area. Examining the euro's debilities sheds light not only on the euro's (in)capacity to rival the dollar as an international currency, but also on the future of both the euro and the dollar in the aftermath of the euro-zone crisis

The changing patterns of group politics in Britain

Two interpretations of ways in which group politics in Britain have presented challenges to democracy are reviewed: neo-corporatism or pluralistic stagnation and the rise of single issue interest groups. The disappearance of the first paradigm created a political space for the second to emerge. A three-phase model of group activity is developed: a phase centred around production interests, followed by the development of broadly based 'other regarding' groups, succeeded by fragmented, inner directed groups focusing on particular interests. Explanations of the decay of corporatism are reviewed. Single issue group activity has increased as party membership has declined and is facilitated by changes in traditional media and the development of the internet. Such groups can overload the policy-making process and frustrate depoliticisation. Debates about the constitution and governance have largely ignored these issues and there is need for a debate

Sovereign debt restructuring : the judge, the vultures and creditor rights

What role did the US courts play in the Argentine debt swap of 2005? What implications does this have for the future of creditor rights in sovereign bond markets? The judge in the Argentine case has, it appears, deftly exploited creditor heterogeneity – between holdouts seeking capital gains and institutional investors wanting a settlement – to promote a swap with a supermajority of creditors. Our analysis of Argentine debt litigation reveals a ‘judge-mediated’ sovereign debt restructuring, which resolves the key issues of Transition and Aggregation - two of the tasks envisaged for the IMF’s still-born Sovereign Debt Restructuring Mechanism. For the future, we discuss how judge-mediated sovereign debt restructuring (together with creditor committees) could complement the alternative promoted by the US Treasury, namely collective action clauses in sovereign bond contracts

Hegemonic Currencies During the Crisis: The Dollar Versus the Euro in a Cartalist Perspective

This paper suggests that the dollar is not threatened as the hegemonic international currency, and that most analysts are incapable of understanding the resilience of the dollar, not only because they ignore the theories of monetary hegemonic stability or what, more recently, has been termed the geography of money; but also as a result of an incomplete understanding of what a monetary hegemon does. The hegemon is not required to maintain credible macroeconomic policies (i.e., fiscally contractionary policies to maintain the value of the currency), but rather to provide an asset free of the risk of default. It is argued that the current crisis in Europe illustrates why the euro is not a real contender for hegemony in the near future