1. IT Revolution: A “New Economy”? IT Revolution: A Critical Juncture? Superstar economy Heightened income inequality Global elite…the 1 % …the 0.1 % Heightened spatial inequality Networks economies/agglomeration economies Conquest of geography? Ubiquitous progress Financial innovations Fragility and crisis A new international monetary architecture?

2. International Monetary Regimes Classical gold standard $22/oz.  $4.86/£  4.2 M/$  20.4 M/£ The Great War (WWI)  Suspension Interwar instability – Hyperinflation – Restoration: Gold – Exchange Standard – Depression  Golden Fetters – Reflation – Recovery WWII Aftermath: Bretton Woods System – Adjustable pegs to $ Fundamental disequilibrium – IMF Support – IMF Conditionality

3. Bretton Woods System: Stability and Its Discontents The Golden Age/The Age of Keynes: 1946 – 1973(?) Dollar Dominance Triffin Dilemma: Buildup of $ reserves  threat to credibility Stop $ outflow  squeeze world trade Continue $ investments  “bank run” Bretton Woods System Self – Destructs Vietnam War  $ Glut – de Gaulle theatrics – Nixon Economic Plan (NEP) ~ an end to Bretton Woods Close gold window 10% import surtax Wage – Price Controls

4. Floating and Its Discontents The theory: no intervention  no need for reserves The practice: intervention  $ reserves  $ privilege – The $: vehicle currency for trade – The $: thick financial markets  Liquid $ assets – Stabilize rates against $  Stabilize cross-rates Currency misalignments  Currency crises – Latin America’s “Lost Decade” – Tequila/East Asia Global demand for $s  Capital inflows to US  US International Debt  Threat of “Bank Run” The US Housing Bubble  (Developed) World in a Slump Dysfunctional US Finance/Dysfunctional US Politics  A New International Monetary Architecture???

5. The Euro: An Alternative? Why a €? Euro economics – Transactions costs – EU Common Agricultural Policy CAP requires fixed rates across EU currencies Fluctuations  Arbitrage opportunities Fixed rates (snake in tunnel/worm in snake)  common currency – Import German Discipline – Seats @ BUBA’s Table Euro politics – Integration  Peace – Tie Germany to West Europe: The German-French Condominium

6. Springtime of the Euro German wage discipline  German competitiveness  Current account surpluses Capital inflows to peripheral countries  Financial bubbles/Housing bubbles/Fiscal bubbles – Iceland – Cyprus – Ireland – Spain – UK – Greece – Italy – Portugal

7. The $ Prevails Measures of dominance 75% of non-US trade invoiced in $s 85% of foreign exchange transactions in $s 45% of international bonds in $s 61% of reported reserves in $s (and Bank of China doesn’t report) Oil and other commodities priced in $s Reasons for dominance World’s largest economy/largest financial markets Incumbency – Quote prices in same currency as competitors use – Hedge with $ derivative contracts – Sell international bonds in thickest market – Shadow the currency others shadow  stable cross-rates – Hold $ reserves for intervention…Hold liquid US Treasuries – Peg to low ‘flation country English: the world’s language – US Business Schools  Economics/Finance Texts

8. Credible Alternatives to $??? UK, CH, CND too small/too little debt to be held for reserves Japan unwilling: overvalued currency not welcome Euro : has the size, debt securities, volume of trade, etc. – BUT Fiscal incoherence Policy incoherence No government  No bonds  No guarantees Emerging Markets…BRICS??? – Strength to lead? Convertible currency? Thick market in government bonds? – Credibility to lead? Regulatory framework? Rule of law? – Willingness to lead? Bear the “burden” of an overvalued currency?