Cato Journal: Monetary Reform in the Wake of Crisis

Cato Journal
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But the Fed has long been reluctant to confine itself to any one particular rule or standard for assessing its performance, for the same reason any bureaucracy would object to having to having its discretion curtailed. This discussion was lively during the Great Stagnation of the s, but unfortunately was largely dormant during the Great Moderation. Thankfully, sound-money scholars have already begun renewing the search for a monetary constitution , outlining what specific steps Congress and the Fed should take to bring us closer to a rules-based monetary system that is less vulnerable to political and special interests.

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This special issue of the Cato Journal stems from the Cato Institute's 29th Annual Monetary Conference—Monetary Reformin the Wake of Crisis—held in. This special issue of the Cato Journal stems from the Cato Institute's 29th Annual Monetary Conference—Monetary Reformin the Wake of.

His research focuses on financial innovation in the developing world, including the mobile money revolution that has taken place in Sub-Saharan Africa. Burns earned his M. Instagram chief Adam Mosseri announced that the platform is taking a new approach to popularity, hiding the total like counts to users across the United States.

Fractional Reserves and Economic Instability

Only funds held as savings may be safely "invested" or loaned. Kennedy, Margrit. What Made the Financial Crisis Systemic? Not so. Your information is secure with us. If, counterfactually, the Zedillo administration had accompanied the original decision to modify exchange rate policy with a global program of new privatizations including the state-owned oil industry as well as a new round of foreign investment liberalization, the results would have been radically different.

This effort, which is part of an ongoing test carried out by Instagram since early , ignited a fierce debate among social media users and experts. However, some believe that the change is a healthy one, as it may put the social media network on the path of boosting — not sabotaging — free speech and creativity. So far, however, the firm has not produced enough data to help experts look at the real-world results of these changes. Should these trends reflect all users in the long run, naysayers might be vindicated.

In any case, what we are seeing is less engagement surrounding big accounts and those that use Instagram as a marketing platform. If this continues to be the case, the change might actually be a step in the right direction. Platforms like Instagram and Facebook have long been criticized for favoring certain views over others, putting them at the center of a political war that is now being fought in Washington, D.

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Since then, however, social media platforms have made an effort to appear more inclusive, especially to those who lean right. The move to take the pressure off and curb the competition aspect of posting on Instagram may have something to do with making the platform less politically charged. Facebook already started to hide like counts in Australia, claiming that the goal of the test was to help boost the quality of the posts and get rid of the popularity-contest aspect present on the social media platform.

Twitter CEO Jack Dorsey has also been discussing the possibility of removing public likes from tweets for quite some time. In other words, those making a living using their online persona will have to find creative ways to stay relevant. In the meantime, Instagram goes back to how most social media platforms used to be, becoming a space where people can share images that speak to them and their followers and making the environment safer so that people can go back to speaking their minds.

For users in general, the total like counts remain visible. If the changes remain irrelevant to everyday users and continue to impact only big-name accounts, then, perhaps, we might be able to elevate the debate and see more regular users succumbing to the pressures created by a heavily marketing-driven environment. Or is it just introducing social pathologies? While it was easy to discover new accounts and photos that way, the feature inadvertently pushed real-world rivalries into digital spaces.

Even worse, it made for uncomfortable conversations:. Not only did this make me more aware of my lack of online privacy, but I found that I had to defend myself for doing what most of us do while waiting in line at the grocery store — mindlessly scrolling and liking on our social media apps. Hiding likes might make our Instagram experience better than before — allowing us to be freer to like what we want while curbing social chaos. Not for at least six months or so had I been in an airport.

It was my choice. The trains are just too wonderful : no scans, solid internet at no extra charge, large seats, glorious scenery. You get one announcement at each stop and nothing else. Riding the train feels like you are living in an older, freer America.

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I would gladly double my travel time if it meant taking the train over the plane. So setting out on plane travel this weekend, I decided to figure out precisely what it is that is so horrible about flying these days.

There are obvious annoyances like tiny seats and invasive scans, the confiscation of nail trimmers, and so on. But there are a lot more besides.

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At some point, human beings feel a sense of demoralization when they are treated like cattle. Under the classical gold standard of the nineteenth century, the major trading countries chose the benefits of free capital flows and the perceived stability of a fixed relation of their currency to gold; of necessity, then, they largely abjured independent monetary policies.

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Under the Bretton Woods system created at the end of World War II, many countries renounced capital mobility in an attempt to maintain both fixed exchange rates and monetary independence. Currently, among the major industrial regions at least, we have collectively chosen a regime that gives up fixed exchange rates in favor of the other two elements. Is the international monetary regime that is in place today the best one for the world? My view is widely--though not universally--shared among economists and policymakers.

The Mexican Peso Crisis: Comment on Meigs

In particular, what was once viewed as the principal objection to floating exchange rates, that their adoption would leave the system bereft of a nominal anchor, has proven to be unfounded. Most countries today, including many emerging-market and developing nations as well as the advanced industrial countries, have succeeded in establishing a commitment to keeping domestic inflation low and stable, a commitment that has served effectively as a nominal anchor.

A newer critique of floating exchange rates contends that exchange rates are more volatile than can be explained by the macroeconomic fundamentals and, moreover, that this excess volatility has in some cases inhibited international trade Flood and Rose, ; Rose, ; Klein and Shambaugh, Like other asset prices, floating exchange rates do indeed exhibit a great deal of volatility in the very short term, responding to many types of economic news and, sometimes it seems, to no news at all.

Whether this very short-term volatility is excessive relative to fundamentals which are inherently difficult to observe and measure is debatable. In any case, this short-term volatility seems unlikely to have substantial effects on trade or capital flows, as short-term fluctuations in exchange rates are easily hedged. Exchange rates also exhibit long-horizon volatility, of course; but, although the swings in the exchange value of the dollar over the past thirty years have been large, so have been the changes in the global macroeconomic environment.

As key components of the international adjustment mechanism, fluctuations in exchange rates and the associated financial flows have often played an important stabilizing role. For example, the sharp rise in the dollar in the late s reflected to an important degree a surge in U. The capital inflows, the stronger dollar, and the associated rise in imports worked together to permit increased capital investment in the United States during that period, enabling production and incomes to grow without overheating the economy or requiring a sustained rise in interest rates.

The value of floating exchange rates as shock absorbers might make their adoption worthwhile even if their volatility did have a chilling effect on trade. However, the sharp rise in trade volumes relative to world gross domestic product in recent decades suggests to me that, at least for the world as a whole, any such chilling effect has likely been minor.

The presumption in favor of allowing the market to determine the exchange rates among the major currencies is strengthened by the fact that a consensus about the appropriate levels at which to peg these currencies would be difficult to obtain. A poor choice of the rates at which currencies would trade could condemn one or more regions to unwanted inflation and the other regions to economic stagnation for a transition period that could easily last several years.

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Nor were these macroeconomic costs compensated for by greater external stability; in both episodes, doubts about the sustainability of the peg generated speculative attacks that ultimately forced the pound off its fixed rate. Overall, the case for floating exchange rates among the United States, Japan, and the euro zone seems to me to be compelling.

Generally, though, my sense is that the benefits of floating exchange rates exceed the costs for these countries as well. Much more controversial is the question of how developing and emerging-market countries should resolve the trilemma. But even those most concerned about potential instability in international capital flows would have to admit that comprehensive capital controls, if applied for any extended period, might solve one problem at the cost of creating a more serious one--namely, the inhibition of growth and development that occurs when nations lack access to international capital markets.

At best, then, restrictions on capital mobility should be viewed as a temporary expedient, a second-best or third-best solution to the problems presented by flawed or immature institutions in a nation at early or intermediate stages of development. If foreign investors are thus reassured that their capital will be employed efficiently and its returns repatriated smoothly, the risks of capital flow reversals under a regime of free capital mobility should be much reduced.

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If we agree that every country should set a goal of achieving at least some degree of capital mobility, then the trilemma for developing countries ultimately boils down to the choice between flexible exchange rates and the associated independence of monetary policy and fixed rates which do not allow monetary independence. For the remainder of my remarks I will focus on that choice.

Both types of regime are actually broad categories, each of which contains a number of variants. Fixed exchange rates are almost never irrevocably fixed, for example: Crawling pegs allow the rate to be adjusted in a controlled manner, while some putatively fixed rates are actually re-set at frequent intervals, either as an instrument of policy or under external pressure. So-called hard pegs, including currency boards and dollarization, may draw credibility from various institutional impediments to changing the rate; but even full dollarization can be reversed, as Liberia proved in So what should developing countries do about the exchange rate?

Theory suggests that any group of countries whose economic structures and trade linkages satisfy the requirements of an optimum currency area, in the sense of Mundell , would be well served by fixing the exchange rates among their currencies or, even better, by forming a currency union. Indeed, some studies have concluded that even the United States and the European Union, the largest currency unions, are themselves not optimum currency areas. Besides countries well-suited for a currency union, a second group of countries that might conceivably be better off with a fixed exchange rate, at least for a time, are the very poorest and least developed countries, which may lack the institutional infrastructure to effectively operate an independent monetary policy.

In these countries, a hard peg or even the adoption of the currency of a major trading partner--sometimes known as dollarization, although the term also refers to cases in which the currency adopted is one other than the dollar--may be policy options worth considering. I want to be clear that I am speaking generally and am not advocating that other countries adopt the U.