Richard Anderson has written a nice primer on what is meant by Monetary Base of a Central Bank. As we know Fed has expanded its balance sheet(and so have others) by purchasing assets. The purchases have mainly been financed by increase in monetary base which appear on the liabilities side of the Balance sheet.
Now what is Monetary Base? Read Anderson’s paper for details.
April 7, 2009 at 10:24 pm |
Excerpt – Alone among the world’s nations, a large proportion of U.S. currency—more than half and perhaps as much as two-thirds—is held outside the United States (e.g., Anderson, Bordo and others, 2006, pp. 3-614 and 3-615).
I believe that this is one of the primary reasons why some Dr. Dooms are bearish on the USD. An unwinding of – let’s call it – the Dollar trade may just result in uncontrollable hyperinflation in the US. And, related to this, is also 1 of my earlier comments where I asked what the result would be in case of a China dumping US treasuries (as hypothetical as it may sound).
Your opinion would be most welcome Amol as blunt as it may be! – Hope to hear from you
April 8, 2009 at 3:41 pm |
I think doomsayers are bearish on USD as the crisis means demand for USD assets declines. However, they be bearish on USD but I still see USD holding up. Any other currency with the US kinds crisis would have simply been wiped off.
If the crisis was just US centric may be USD would have been in trouble. But not right now. With all econs in trouble USD is still the best choice you have. China would love to dump US Treasuries but where else would it invest? Where is the choice.
April 7, 2009 at 10:31 pm |
Really good read – thanks! Would you care to explain ‘payments-oriented reserve requirements’?
April 8, 2009 at 4:12 pm |
How about the Eurozone? –
And can you shed some light on ‘payments-oriented reserve requirements’ – it is towards the end of the primer
April 8, 2009 at 4:37 pm |
I didn’t get your q on Eurozone?
I am sorry couldn’t understand this technical term ‘payments-oriented reserve requirements’. Central Banks are highly diverse and each one has unique ways to conduct monetay policy.
I think you will have to read this paper mentioned as a reference http://www.bis.org/publ/econ47.htm
April 8, 2009 at 4:57 pm |
Hi – Eurozone was in reference to ” China would love to dump US Treasuries but where else would it invest? Where is the choice” —
Would a possible alternative be Eurozone govt. debt? – May be it is the only other ‘entity’ that can digest as much liquidity.
And thanks for the link.