Well, since we're arguing about hypothetical
scenarios, I guess my thinking was that a
Nader victory might send some wealth
high-tailing it to the EU and Japan. On the
other hand, a leftish government in the US
would probably make international financial
reform a top priority , so who knows?
But particular governments and economic
policies are only part of the issue. In my
dissertation, I argued that there are real structural
reasons that explain the pattern of currency
usage. A lot of MNCs generates a deep
global market for dollar assets. Holdings
of both yen and d-marks rose in tandem with
the growth of their MNC sectors.
Once MNCs were accounted for statistically, I
still found a strong "US" effect, part of which
is probably historical inertia, as Tom suggested,
but some of which was explained by military spending.
The currency composition of developing country
forex reserves, for example, correlates strongly
with arms sales by issuing countries.
Frankly, I doubt Japan could promise the same
broad MNC base as the US does - not without
the backing of the US military anyway. On the
other hand, one could argue that global trade
and investment treaties, to the extent that
they protect MNC assets abroad, diminish the
importance of the military.
Dollarization gives the dollar a big boost
in official reserves as well. Ecuadorans
and Argentines can't even buy a loaf of
bread without dollar reserves.
One interesting finding of my thesis, by the
way, was that international banking proved
less important than I had thought. I had
expected that the predominant currency
would have the biggest global finance sector,
to facilitate transactions abroad with some
assurance that the issuing government
would back deposits in the event of a
financial crisis. But it turns out that countries
like Switzerland and the UK domicile lots of
global banks that do business in dollars.
Well, I hadn't given much thought to that
old dissertation of mine in a long time.
Maybe I should dust it off and update it.
Ellen
[EMAIL PROTECTED] writes:
>Ellen, your possibility of a Nader victory tumbling the dollar
>seems inconsistent with the rest of your analysis. My
>understanding is that anything that created the possibility of a
>weakening of the US economy (relative to other major economies)
>could set off a panic.
>
>For example, if the financial world saw the new Japanese leader
>as a reincarnation of Reagan who would reinvigorate their
>economy, at the same time that the US economy faltered, then a
>panic could occur.
>
>One other factor in the US economy's favor is the synchronization
>of the world's major economy, which would support Ellen's thesis
>that the holders of $$$ would have nowhere to go.
>--
>
>Michael Perelman
>Economics Department
>California State University
>Chico, CA 95929
>
>Tel. 530-898-5321
>E-Mail [EMAIL PROTECTED]
>
