and gold standard, 28–29
largest, xx–xxi
massive debt of, xi
in nineteenth century, 6
and worth of gold, 210–218
Chile:
GDP per hour worked in, 33f
productivity growth in, 31f
China, 219–240
ancient, 11, 27
bank loans in, 46–47
central bank of, xx–xxi
cost of holding reserves, 85
and criteria for hegemonic reserve currency, 75
currency policy of, 222–223, 225, 229–231, 233–234, 238, 239
and current global economic transition period, 224–225
demographics in, 87
economic growth in (see Economic growth, in China)
economic policies of, 222, 226
economic prosperity in, 87
economic size of, 36
equity market capitalization, 23f
exports of, 40f, 164–166, 164f, 166f, 167f
fertility rate in, 42
financial markets in, 45–48
foreign currency reserves of, 226–227
future role of, 120
in G-20, 190
GDP of, 36, 37, 37f, 40–41, 40f, 51f, 120, 173, 174f, 221
and global currency imbalances, 219–220
in global economic decisions, xii xii
housing bubble in, 64
ideological transition in, 87–88
interest rates in, 46
investment in, 40f, 45–47, 222, 228
labor pool in, 38–39, 39f
legal system in, 231
life expectancy in, 44f
limits to economic growth of, 37–39
local currency trades by, 78
manufacturing in, 59
market capitalization of listed companies, 119f
meteoric rise of, 220–221
money pouring into, xiii
and “non-cooperative cooperative game,” 238–239
persisting attitudes in, 48
planned changes in, 39–41
population growth in, 37, 38f
poverty in, 86, 221, 227, 232–233
private consumption in, 40f, 42, 221–222, 228
productivity growth in, 32, 229
rebalancing growth in, 161–185, 189
addressing present imbalances, 175–184, 176f
benefits of, 184–185
and corporate savings, 171, 171f
and current growth model, 161–163, 183–184
and dependence on external demand, 164–166, 164f, 166f, 167f
and employment growth, 173, 174f
financial-sector reform, 177–180
healthcare, pensions, and education reforms, 177
and household consumption, 172–173, 172f
input costs and corporate reforms, 180
and investment, 167–170, 168f–170f
present economic imbalances, 163–164
and service sector, 173, 174f
yuan appreciation, 180–184, 181f
recent improvements in, 86–87
and RMB as international reserve currency, 233–238
rule of law in, 75, 231
saving rate in, 41–42, 41f
service sectors in, 228, 229
stock market capitalization in, 44
wages in, 39
China Banking Regulatory Commission, 46–47
China Construction Bank, 49
Chinese yuan (renminbi):
appreciation of, 120, 180–184, 181f, 227–232
currency peg for, 222–223, 225, 229–231, 238, 239
devaluation of, 47–48, 47f
and foreign investment, 227–228
and “G-2” discussions, 191
government control of, 45
as hegemonic reserve currency, 73–76, 86–89
and income inequality in the U.S., 222–224
as international reserve currency, 233–238
real exchange rate for, 227
and rule of law, 75, 231
as substitute for the U.S. dollar, 49–53
Commercial banks, forex trades of, xix
Committee of Governors (Europe), 96
Commodity deflation, 65, 66f
Competitive devaluation, xiii
Connally, John, xii
Consumer Price Index, 215–216, 215f
Corporate reforms, in China, 180
Corporate savings, in China, 171, 171f
Corporations:
with direct investments in China, 231–232
forex trades i, xix, xx
Cost of capital, in China, 169–170, 170f, 171f
Council of Economic and Finance Ministers (Ecofin Council), 95–96, 98
Council of Ministers of the European Communities (EC), 93, 94
Credibility:
of currency values, 24
current account deficit, 67–68
and forms of deflation, 64–67, 65f, 66f
recycled dollars, 69–70
Currencies:
under Bretton Woods Agreement, xviii
and central banks, xx–xxii
declining confidence in, xv
of emerging nations, xiii
fiat, xvii, xviii, 204, 209–210
foreign exchange market, xix–xx
free float of, xviii–xix
history of factors affecting, 5–10
pegging, 85n.10
as policy weapons, xiv
reasons for weak vs. strong, xxi
SDRs as potential claims on, xv
(See also specific currencies; specific topics)
Currency fluctuations, central banks’ influence on, xxi
Currency markets, 127–128, 188
Currency movements, analyses of, 126–127
Currency relationships, 127–129
“Currency snake,” European, 93
Currency values:
analyses of, 126–127
credibility in, 24
external, 100 (See also Exchange rates)
manipulation of, xxi
as policy tool, 133, 134
relative, 129
and weakness of U.S. dollar, xii
Currency war(s), 187–192
of 1930s, xiii
Currency Wars I and II, 188, 190
reducing risk of, 117
Current account:
of China, 176, 182
and countries issuing reserve currency, 87
of the U.S., 2–4, 67–68, 222
Cyprus, political society of, 132
Czech Republic:
GDP per hour worked in, 33f
productivity growth in, 30, 31f
D
Deflation, forms of, 64–67, 66f
Delors, Jacques, 94
Delors Report, 94
Denmark:
GDP per hour worked in, 33f
government expenditures in, 140f
productivity growth in, 31f
Depth of markets:
euro area, 119
and success as international currency, 22
and the U.S. dollar, 44, 45f
Deutsche mark (see German (deutsche) mark)
Devaluation:
competitive, xiii
and eurozone common currency, 60
Dinar (see Arabian dinar)
Dollar:
Spanish, 6
U.S. (see U.S. dollar)
Drachma, 5
Drachma, Athenian, 5
Draghi, Mario, 145, 152
Dual international currencies, 29–30
Ducat (ducato), Venetian, 6, 203
Dutch country banks, 9
Dutch guilder, 6, 13
E
ECB (see European Central Bank)
Ecofin Council (Council of Economic and Finance Ministers), 95–96, 98
The Economic Consequences of the Peace (John Maynard Keynes), 207–208
Econo
mic growth:
in China, 53, 74, 161–185, 174f, 220–221, 229–233
addressing present imbalances, 175–184, 176f
benefits of, 184–185
and corporate savings, 171, 171f
and current growth model, 161–163, 183–184
and dependence on external demand, 164–166, 164f, 166f, 167f
and employment growth, 173, 174f
financial-sector reform, 177–180
healthcare, pensions, and education reforms, 177
and household consumption, 172–173, 172f
input costs and corporate reforms, 180
and investment, 167–170, 168f–170f
limits on, 37–39
present economic imbalances, 163–164
and service sector, 173, 174f
yuan appreciation, 180–184, 181f
global, 189–190
for success as international currency, 21–22
in the U.S., 35
Economic policies:
of China, 50, 52–53, 222, 226
of Europe
and EMU first stage, 95–96
and EMU reform, 106–107
and EMU second stage, 96–98
as tools, 133–134
Economic size:
of China, 36
and hegemonic reserve currency, 74–76
and success as international currency, 22
and the U.S. dollar, 36–44, 37f, 38f, 40f, 41f, 43f, 44f
Economies of scale, 77
Economy, world (see World economy)
ECU (European Currency Unit), 82, 82f
Education reforms, for China, 177
EEC (European Economic Community), 10, 92
Egypt, ancient, 10, 202
Eichengreen, Barry, 196
El-Erian, Mohamad, 238
EMCF (European Monetary Cooperation Fund), 93
Emerging economies:
and changing world power dynamic, xxiii
effect of U.S. and European economies on, 68
Emerging nations:
Asian, 144
and competitive devaluation, xiii
Emerging-market economies:
future role of, 120
official reserves held by, 84
self-insurance by central banks of, 75n.2
EMI (European Monetary institute), 96
Employment:
in China, 46
in the U.S., 35, 36
EMS (European Monetary System), 94
EMU (see European Economic and Monetary Union)
The End of History and the Last Man (Francis Fukuyama), 125–126
Energy, in China, 168–169, 169f
England:
gold in, 206–207
productivity in, 19
recent inflation in, 212
EPU (European Payments Union), 92
ESFS (European Financial Stability Facility), 107–108, 153–154
ESM (European Stability Mechanism), 108–109, 153–154
ESRB (European Systemic Risk Board), 108
Estonia:
GDP per hour worked in, 33f
productivity growth in, 30, 31f
EU (European Union), 9, 142
EU Stability and Growth Pact, 60–62
Euro, 91–124
benefits of, 102–103
criteria for introducing, 98
current trends in reserve status of, 113–114, 113f
and EMU reform, 104–109
exchange rate with U.S. dollar, 101f
foreign exchange reserves, 101f
future of, 125–144
and conclusions drawn from history, 125–127
cultural and sociological issues in, 130–133
and currency relationships, 127–129
and declining population, 135–138, 138f, 140–141
economic issues in, 133–135
and global reserve responsibility, 129–130, 131f
and long-term debt cycle, 136–137
and need for change, 142–143
and social welfare system, 135–136, 138–139
and statist industrial policy, 139–140, 140f
history of, 91–98
as key player in multipolar currency system, 116–119, 117f–119f
in the next 20 years, 119–121
official reserves held in, 82, 82f
and preconditions for reserve currency status, 111–113
protection of, 158
recent waning confidence in, xiii
and reform of international monetary system, 110–111
as reserve currency, xiii, 7–8, 8f, 83–84, 100, 101f, 130, 131f
share of global currency reserves, 117f
shift of reserves into, 29
and sovereign debt crisis, 103–104, 104f
and Special Drawing Right, 115–116
and stable exchange rate, 100, 101f
and stable inflation rate, 99–100
as substitute for the U.S. dollar, xii, 58–63
and viability of challenges to U.S. dollar, 114–115
and weakness of U.S. dollar, 29–30, 30f
Euro Plus Pact, 107
Eurobonds, 156, 157
Europe, 43
and balance of global power, 129
bond market in, 217
calls for integration in, 62–63
cartels in, 62
cultural differences in, 59
debt of, 134
declining population of, 134, 137–138
disparity among countries in, 132–133
economy of, 58, 59
flaws of common currency in, xiii
future of, 143–144
historical revivals of, 142–143
immigration in, 61
international capital flows in, 92
and international monetary system reform, 110
post-World War II productivity in, 20
rebalancing growth in, 189
recent inflation in, 212
social welfare system in, 134–135, 138–14
(See also Eurozone)
European Central Bank (ECB), xx
bailout of weak countries by, 8
balance sheet of, 213f
ceding of authority to, 92
country bank support from, 137
and debt crisis of 2010, xiii
and future of eurozone, 146
long-term refinancing operation of, 151–154
mandate of, 28
European Commission, 94, 105, 106, 146
European Council, 92–93
European currencies, 91–94 (See also Euro; European Economic and Monetary Union (EMU))
European “currency snake,” 93
European Currency Unit (ECU), 82, 82f
European debt crisis (2010), xiii, xiv, 8–10, 59
European Economic and Monetary Union (EMU), 91–98
eligibility criteria for, 97
first stage of, 95–96
GDP of U.S. vs., 74
historical significance of, 91–93
preparation for, 94–95
reform of, 104–109
risk of collapse of, 84
second stage of, 94, 96–98
third stage of, 98
and trade, 102
European Economic Community (EEC), 10, 92
European Financial Stability Facility (ESFS), 107–108, 153–154
European Monetary Cooperation Fund (EMCF), 93
European Monetary institute (EMI), 96
European Monetary System (EMS), 94
European Payments Union (EPU), 92
European Stability Mechanism (ESM), 108–109, 153–154
European Systemic Risk Board (ESRB), 108
European Union (EU), 9, 142
Eurozone:
benefits from euro in, 102
and criteria for hegemonic reserve currency, 75
current crisis in, xiii, xiv, 8–10, 59
default risk in, 136–137
defined, 145
demographics of, 137–138, 140–141
economic policies in, 133–134
equity market capitalization, 23f
factors in GDP growth, 164, 164f
founding of, 10
future of, 145–159
benefits to Greece exiting, 146–149
buying time for Italy and Spain, 151–155
core countries’ benefits from zone breakup, 155–159
exits following Greece’s, 149–151
GDP of, 7, 9, 32, 33f, 37f
lack of common fiscal policy in, 8
market capitalization of listed companies, 119f
net debt outstanding, 23f
net foreign capital inflows to, 118f
potential withdrawal of Greece from, 9
productivity growth in, 31f
reduction of Standard & Poor’s ratings for, 9
sovereign debt crisis in, 29, 103–104, 104f
struggles against control in, 236
(See also Europe)
Exchange rates:
Chinese managed floating exchange rate, 52–53
Chinese yuan, 180–184
in EC, 93–94
and the euro, 100, 101f
and SDRs, xv
Smithsonian Agreement, 93
Export-driven countries:
China, 164–166, 164f, 166f, 167f
developing countries, 53
F
FDI (foreign direct investment), 102–103, 118f
Federal Reserve (the Fed):
in the 1920s, 235
balance sheet of, 213f
during Great Depression, 206
monetary policy regulation by, xx
and reserve requirements, 52
unorthodox policies adopted by, xi–xii
and worth of gold, 210–218
Fiat, inflation by, 67
Fiat currency, xvii, xviii, 204, 209–210
Financial asset deflation, 64
Financial crisis (2008), xi, xii
and changing world power dynamic, xxiii
and China’s growth model, 162
and creation of new money, 198
and exhaustion of U.S. economy, 224
and long-term American prospects, 73
and upgrade of G-20, 190–191
Financial industry, 232
Financial markets:
in China, 45–48, 179–180
in emerging nations, 76
in Europe, 92, 107–108
free and open, 22, 45–48, 47f
history of, 127–129
and success as international currency, 22
Financial-sector reform, for China, 177–180
Finland:
in EMU, 98
GDP per hour worked in, 33f
government expenditures in, 140f