Oooooh, Dear

Tim Garton Ash essays into fields economic:

But we are in turbulent financial times, and they may get even more so. The euro is strengthening, while the dollar and the pound are weakening. What if, a few years from now, Britain is back to the bad old days of sterling crises? What if belonging to a strong currency bloc looks increasingly attractive in a world of big players and big storms?

Erm, apparently he has missed the point that you can only have a sterling crisis when you\’ve got a fixed exchange rate. If you\’ve got a floating one, as we have, then we cannot have one.

Note that the last one we had was indeed when we had a rate fixed in the EMS. As was the one before that actually, a result of a fixed exchange rate…..hmm, might be a pattern here, for so was the one before that, and, umm, the one before that.

So it\’s really rather odd to think that joining the euro, which is of course the same as declaring an exchange rate fixed for all time, is the solution to something which only happens with fixed exchange rates. As Dani Rodrik has pointed out, it\’s entirely possible (in fact, in a non-optimal currency area, almost certain) to have even worse problems within a currency union than out of it.

5 thoughts on “Oooooh, Dear”

  1. So Much For Subtlety

    I don’t get the idea of being part of a larger currency block is likely to make currency crises less likely. A bigger block is likely to mean poor responses to local problems. The authorities have to get their policies right for a much more diverse set of economic conditions (which isn’t necessarily a bad thing of course). I assume that what he means is that the English are too thick, incompetent and corrupt to be trusted with their own currency and it would much nicer if those nice Germans did it for us.

    Well yes. The English are. But the Germans are no better. Perhaps he ought to opt out of any future currency crises by simply deregulating currency altogether. Why can’t we choose?

  2. Money and its quantity (revealed to each market participant by competition encountered in both buying and selling) convey vital information. Other than protecting the integrity of a currency, there’s literally no function for an authority to perform with respect to the stuff that is not, in some fashion, an attempt to interfere with its information-transmission function. Monetary policy is always an attempt at the deception of some, whether or not with the intent to benefit some particular others. The formation of groups to coordinate these policies can, temporarily, ease the incidence of crises to which group members might otherwise encounter but, ultimately, ensures that an even wider catastrophe shall be suffered by the even larger number concerned.

    In the “old days,” some would prudently protect against a crisis in their own currency by holding some other (and securities in that other).
    It is still possible to do so but, since there is no such thing as convertibility (to specie) any longer, it’s most likely an exercise in futility.

    Neither the laws of any nation nor their constitutions (including that of the U.S.) are of any help: it is the overwhelming concensus of humans on the planet that it is the legitimate business of government to establish and regulate the value of money and, likewise, to
    compel all (via “legal tender” laws) to make continuous, reiterated obeisance to the legitimacy of such function of authority.

    The ONLY system that has even a prayer of long-term survival is one in which such laws are diametrically opposite, i.e., one in which the government (and only the government) would be the only entity legally obliged to honor their “legal tender” currency, while all others would be free to accept it, reject it, or accept it subject to some negotiable discount. Such a regime would force government(s) to a different set of mind about money and its quantity, if only in their own interest.

  3. Yet more inconsequential, badly thought out Europhile candyfloss from the distinguished bearded homme serieux.

    God, Tim, we should challenge TGA CMG (did you know he’d been gonged up?) to a debate on any one of his books or articles. He’s a bigger ideologue than Monboit, more persistent than Hutton and more slithery than Toynbee.

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