The most important aspect of USD centrality is not its role as the dominant international reserve asset, but rather its role as the dominant denomination of cross-border liabilities. Here I stand, I can do no other.

https://twitter.com/deitaone/status/1663944885819277318

There’s more here, but if nothing else, look at the graph that shows up on the link. karthiksankaran.medium.com/the-burden-of-…

And to think we were just talking about discretionary spending and the excess over precautionary reserves.

https://twitter.com/middleeast/status/1660995701856165888

But this raises a stylized (albeit ad absurdum) question. Is it better for world for KSA to blow 400 mio $ annually to lease Messi, an imported intermediate good who helps boost domestic services consumption, or to acquire an equity interest in a plant making windmills somewhere?

Original Sin: Too much FX debt
Plagiarized Sin: Too much FX-linked or inflation-linked debt.
Sequel Sin:Too many FX-sensitive foreign investors in your LC debt market & high FX passthrough into inflation.
Dark-Gritty Reboot Sin:Sequel Sin but plus a CB bent on monetary dominance. I honestly believe this is a genuinely useful contribution to the literature.

1) In purely economic terms, the question of whether the USD is privilege or burden for the US is mostly meh… (IMO bit more the former), but in geopolitical terms, USD centrality confers privilege via a low-cost tool of suasion.
2) There is no formal necessity for the country At the center of the IMFS to run trade deficits, but a hegemonic creditor model, where global liquidity is provided by capital exports from a c/a surplus central country would likely have much lower credit growth.
3) mapping current account positions to domestic inequality and

With complete nominal certainty, an actual use case, and no unsettling tendency to suffer substantial mark-to-market losses (albeit lower losses than nominal bonds) the USPS Forever Stamp is a vastly superior inflation hedge to TIPS, precious metals or crypto. @RajaKorman It is also in bearer form.

Dumb question. I remember learning in middle school history about various Chinese, Roman, Greek accounts of travel to India in before/during 1st millennium CE. Are there parallel accounts from that era by travelers from India describing China, West Asia or Mediterranean Basin? @RajaKorman There are many surviving texts from Indians who travelled abroad (ie Dharmarakṣa, Lokaksema, Kumārajīva), especially Buddhists. But I think the bulk of their work were translations of religious texts.

Indian sources, in general, seem to have a lack of history

The idea that wage-increase-driven capital deepening and wage-increase-driven offshoring are alternatives may apply at a national level but not at a global level. Because offshoring typically is associated with capital investment/deepening overseas rather than at home. This In turn likely increases productivity in the sectors that draw in FDI in the offshoring-recipient country. Wages in the recipient country in those sectors will likely rise in real terms, although those increases will likely lag the productivity gains in those sectors. That’s just

I was thinking about how Florida is now home to pythons and so could clearly also be a good place for monkeys and started wondering why we don’t have monkeys in the US (alas —would be awesome) and I found this. sciencealert.com/why-are-there-… In fact, other than Gibraltar, looks like NATO is basically a monkey-free area.

True currency dominance is when you get RoW banking systems to have a bigger role than your own in intermediating your currency across borders, opening them to conditionality for access to your LoLR, and extraterritorial reach of your legal system any time the currency is used. This tweet, and the numbers therein, should be considered not only an indication of what chafes, but also an indication of why it is extremely premature to conclude that those chafing are anywhere close to the Tinactin.

Following up on my recent thread about "liability currency" being IMO key metric for USD dominance, even more than reserve share, here's a chart based on the BIS locational banking statistics so not HQ, which is why UK is so big), showing denomination of cross-border claims. Just some interesting pointers here--1. EUR is clearly the only other currency that comes close but is still behind USD (I also suspect that a big chunk of cross-border claims in EUR are intra EU or intra EZ). 2. The US banking system is not as large a global USD intermediary

Interesting, but it’s funny no one talks about one obvious thing. The structure of Japan’s government debt (almost entirely owed at home) means it’s not just losing working taxpayers to repay the debt, it’s losing the creditors the debt is owed to.

on.ft.com/3KqwHUL Which could open all kinds of possibilities to manage debt ratios in line with demographic decline. Inheritance taxation could help but might dampen heirs’ sentiment (overstated IMO). Since money demand will likely fall, BoJ could reduce liabilities while ripping up owned JGBs.

The time to get excited is when Brazil has at least a 100 billion dollars worth of Panda Bonds issued in RMB so that the Saudis receiving RMB for the oil they ship to China can buy something that’s not Chinese but still RMB denominated. There are two basic principles here, IMO. 1. Asset/liability/invoice currency denomination is a loop. You need to complete all parts of the loop or you end up with mismatches. 2. You want to match your domestic exposures to externally emanating real cycles and financial cycles.

One of the more important distinctions in macro is whether a country is typically likely to experience.a weakening of its currency as a tightening or a loosening of its financial conditions. Thing that help the latter (better) case include a) a large tradeable sector with a high elasticity of production to the exchange rate b) low FX passthrough into inflation c) limited susceptibility to FX-related liability structures d) limited susceptibility to asset repatriation by FX-sensitive foreign investors, very problematic if a), b) and c) are also worries.

@70sBachchan @zeithistoriker @BrankoMilan Sounds like “Masonry.” And I hate it.

https://twitter.com/rajakorman/status/1071841108445999104

@70sBachchan @zeithistoriker @BrankoMilan When I ask friends on the left how they plan to replicate the income -and complexity-converging effects of technological and managerial diffusion and market access that helped at least huge chunks of Asia after 1990, I get a lame-ass “swap lines + expert aid” answer.

These 3 charts basically capture everything I believe about what works with development strategy. 1st export mix is Malaysia, 2nd is Brazil. Malaysia exports are 130% of GDP. Brazil is c. 14%. More pungently.

https://twitter.com/RajaKorman/status/1394751933672394754

@dylangrice @TheVolawatcher If it is at, it’s very, very early in the process. The only other currency remotely close to the USD in terms of K/A convertibility, fungibility, size & reach of international banking system, likely international interest in its local debt markets is the € and even it had the @dylangrice @TheVolawatcher Obvious issues of not enough safe assets (i.e., pure LC rate product), the sovereign bank doom loop etc. As a € optimists, I think they are getting closer to fixing these issues, but every major attempt to end-run the USD (including CN and RU’s own) has relied on €, and on the

So here is a slightly longer form in screenshots from what i was saying earlier, but the bottom line is that the history of the USD in the markets may be linked to, but is not identical with, the history of the USD in the International Monetary and Financial System. Couple of other thoughts. At times large scale reserve accumulation occurs precisely because the global private sector does not want to accumulate assets or is shedding net assets in a currency. Think of BoJ purchases of USDJPY in the early 2000 or SNB activity in €.

Ive seen a bunch of stuff lately that points to the Rashomon nature of exchange rate valuation. (1/n)
A) it should be based solely on the manufacturing trade balance, because commodities are cyclical and services balances are overstated. B)It should be based on prospectively massive shifts in private capital flows given very large mismatches in desired home Vs. RoW portfolio balances.
C)It should be based on the possibility of official behavior limiting the effects of B) to bring it in line with A).

Most arguments about divergent economic outcomes being the result of different economic systems rely on evidence that is more properly attributed to divergent levels of state capacity and the interaction of state capacity and economic/technological complexity. That’s all. Cc:@DanielaGabor the diagram is up.

Indeed I have two. One of them (which won't surprise you coming from me) is to accept that since even a 150 year fiscal union inside a monetary union hasn't led to real convergence, you should just undo unification.But the other goes back to a classic read on Southern Question & Italy more broadly--the nature of Italian center-right representation and Italian capitalism, its fitful quest for efficiency, and the role of clientelist Southern elites as key mediators between state and society who held the balance of power in Rome.

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