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Morning Must-Read: Barry Eichengreen: Cassandras and Currency Wars - Washington Center for Equitable Growth

Barry Eichengreen:: Cassandras and Currency Wars: “Economic analysis, it seems… …is the art of recycling old ideas under new names. So it is with the debate over currency wars, which parallels exactly the 1930s debate over competitive currency devaluation. David Woo, meet Ragnar Nurkse. Nurkse, in… 1944… [argued that] competitive devaluation was a negative-sum game. These are exactly the arguments made by today’s Cassandras of currency wars…. Subsequent scholarship shows, however, that the main reason monetary policy didn’t work more powerfully in the 1930s was that it wasn’t tried…. Central banks in the 1930s were reluctant to utilise their newfound monetary freedom… failed to make open-ended commitments to raise prices… effectively transform expectations… supplement the new monetary regime with supportive fiscal action… failed to convince investors that they were committed to a fundamentally new policy regime…. And because they failed to coordinate their monetary and exchange rate policies internationally, haphazard exchange rate changes only created volatility and uncertainty, as argued here. Today, in contrast, central banks like the Bank of Japan and European Central Bank are making open-ended commitments to do what it takes…. Without that action and those steps, however, the Cassandras of currency wars will be right.
#Barry-Eichengreen #Currency-Wars - equitablegrowth.org