10/31/2014 - “Governments that engage in Financial Repression (channeling funds toward themselves to reduce their debt) hamper financial development”
A generation of development economists owe Ronald McKinnon, who died earlier this month, a huge intellectual debt for his insight – introduced in his 1973 book Money and Capital in Economic Development
“that governments that engage in financial repression (channeling funds toward themselves to reduce their debt) hamper financial development”. Indeed, McKinnon provided the key to understanding why emerging economies’ financial sectors were underdeveloped.
At the end of his life, McKinnon was working on a related – also potentially groundbreaking – concept: a dollar-renminbi standard. In his view, such a system would alleviate the Financial Fepression and fragmentation that is undermining global financial stability and growth. The question is whether the powers that be – particularly in the United States, which has long benefited from the dollar’s global domination – would ever agree to such a cooperative system.
The notion that the dollar’s global dominance is contributing to Financial Repression represents a significant historical shift. AsMcKinnon pointed out, the dollar became a dominant international currency after World War II because it helped to reduce financial repression and fragmentation in Europe and Asia, where
- High inflation,
- Negative real interest rates, and
- Excessive regulation prevailed.
Being Used during an Era of:
- Global Fiat Currencies,
- A Weak Global Reserve Currency,
- Historic Sovereign Debt Levels
LINK HERE to the source article
