The New International Money Game

426 Pages·2002·1.137 MB·English

by  Robert Z. Aliber (auth.)

The New International
Money Game
Sixth Edition
Robert Z. Aliber
The New International Money Game
Also by Robert Z. Aliber
MONETARY REFORM AND WORLD INFLATION
NATIONAL MONETARY POLICIES AND THE INTERNATIONAL FINANCIAL
SYSTEM
CORPORATE PROFITS AND EXCHANGE RISK
THE MULTINATIONAL PARADIGM
The New International
Money Game
Robert Z. Aliber
Sixth Edition
Palgrave Macmillan
Robert Z. Aliber is professor of international economics and finance and director
of the Center for Studies in International Finance in the Graduate School of
Business of the University of Chicago. He is author of Money, Banking, and
Economic Activity(Norton, 5th ed., 1993) and The Multinational Paradigm
(MITPress, 1993), among many other books.
The University of Chicago Press, Chicago 60637
Palgrave Publishers Ltd., Houndmills, Basingstoke, Hampshire RG21 6XS
ISBN 978-0-333-72544-3 ISBN 978-0-230-50097-6 (eBook)
DOI 10.1057/9780230500976
©2002 Robert Z. Aliber
Reprint of the original edition 2002
All rights reserved. Sixth edition published 2002
11 10 09 08 07 06 05 04 03 02 1 2 3 4 5
ISBN 978-0-226-01396-1 (cloth)
ISBN 978-0-226-01397-8 (paper)
Library of Congress Cataloging-in-Publication Data
Aliber, Robert Z.
The new international money game / Robert Z. Aliber.—6th ed.
p. cm.
Rev. ed. of: The international money game. 5th rev. ed. c1987.
Includes index.
ISBN 978-0-226-01396-1 (cloth : alk. paper)—ISBN 978-0-226-01397-8
(pbk. : alk. paper)
1. International finance. I. Title.
HG3881 .A44 2000
332—dc21
99–055593
The paper used in this publication meets the minimum requirements of the
American National Standard for Information Sciences—Permanence of Paper
for Printed Library Materials, ANSI Z39.48–1992.
Contents
List of Figures, Tables, and Boxes x
Preface and Acknowledgements xi
List of Abbreviations and Acronyms xii
Introduction xv
1 A System is How the Pieces Fit 1
Relationships among the key components 1
Fitting the pieces: the foreign exchange market 2
Fitting the pieces: national financial policies 6
Fitting the pieces: the supply of international money 10
Who fits the pieces together? 15
2 The Name of the Game is Money 17
International finance 17
The politics and technology of money 28
The plan of this book 35
PART I INTERNATIONAL MONETARY
ARRANGEMENTS, MONEY, AND POLITICS
3 ‘The Greatest Monetary Agreement in History’ 39
International agreements 39
Rules and myths of the gold standard 40
The Bretton Woods system 46
Policy responses to payments imbalances 49
The monetary impact of Vietnam 52
Monetary artifacts and the Smithsonian Agreement 55
The EMU is not a bird – but the euro is a money 57
The future of monetary agreements 58
4 The Gnomes of Zurich Play in the Largest Market in
the World 60
Foreign exchange transactions 60
Buy low and sell high 61
Gnomes and non-gnomes 64
The source of exchange crises 70
v
vi Contents
The politics of parity 71
The search for flexibility: floating rates and sliding
parities 75
Floating rates – arguments and experience 80
Which way after floating? 85
5 Gold – How much is a ‘Barbarous Relic’ Worth? 86
Gold’s role as an international money 86
Before gold was a ‘barbarous relic’ 88
The persistent gold shortage 93
Turbulence in the gold market 97
Political and international generalizations 103
6 The Dollar and Coca-Cola are both Brand Names 106
The money-producing industry 106
The market position of currency brands 110
A dollar standard world? 117
The dollar on the hit parade 120
The euro’s challenge to the dollar 122
7 Radio Luxembourg and the Eurodollar Market
are both Offshore Stations 124
Externalized activities 124
The external currency market 125
Links between external deposits in different currencies 131
Internalizing regulation 131
8 They Invented Money so They Could Have Inflation 135
The value of money 135
Watergate economics 141
Carter economics 144
Differences in inflation rates 145
Reaganomics 146
The waves rule Britannia 147
The tunnel at the end of the light 150
9 Oil and OPEC Roller Coaster 152
OPEC to rule the world? 152
Recycling money 155
Every surplus requires a deficit 161
10 The Threes Ds – Disinflation, Deflation, and
Depression 168
Currency reform 168
Disinflation 171
Contents vii
Disinflation and financial institutions 175
Disinflation and the government deficit 177
The Asian financial crisis and the world inflation rate 177
11 Optimal Bankrupts – Deadbeats on an International
Treadmill 179
Ponzi finance 179
International lending – the background 184
The source of developing country debt crises 188
The economics of debt service 191
The optimal bankrupt 192
Workouts, reschedulings, and bankruptcy 195
12 Central Bankers Read Election Returns, not
Balance Sheets 199
The grail of monetary reform 199
Bureaucracy is a growth industry 207
The new mercantilists 209
Reform requires a consensus? 211
13 Monetary Reform – Where Do the Problems Go When
They’re Assumed Away? 213
Resolving conflicts among competing interests 213
Economic expertise cannot solve political problems 227
PART II THE COSTS OF 100 NATIONAL MONIES
14 The Money Game and the Level Playing Field 231
Why is the playing field bumpy? 231
Outgrowing the market 235
Planned and transition economies 237
15 Underground Economies and the Cost of
Regulation 239
The role of government 239
Why don’t the trains run on time? 245
16 Tax Avoidance – A Game for the Rich 249
Tax havens 249
Low-tax jurisdictions 250
Transfer pricing 250
Economic impact of taxation 252
Why tax rates differ 253
Corporate tax rates in industrial countries 255
Taxes on foreign income 260
viii Contents
Taxes on money 263
Tax anything that can’t move 264
17 Banking on the Wire 265
Banking competition 265
What banks produce 268
The payments mechanism 270
Competition among international banks 273
The competitive edge 275
18 Zeros, Swaps, and Options – The Revolution in
Finance 279
A hole in the hedge 279
Where do financial revolutions come from? 282
Index funds 286
Swaps 287
Derivatives and options 288
‘The collapsing house of cards’? 290
19 The World Market for Stocks and Bonds 294
The implications of globalization 294
Is the world stock market integrated or segmented? 295
Investing the lottery prize in bonds 299
The horse race in stocks 303
20 Why are Multinational Firms Mostly American? 307
The American challenge? 307
Patterns of market penetration 312
Why firms invest abroad 315
The costs of direct foreign inverstment 324
Whither the conflict? 328
21 Japan – The First Superstate? 330
The Japanese challenge 330
Japan, Inc. 335
The asset price bubble 339
The external impact of Japan 342
22 China – The 800lb Gorilla 347
China’s ‘big history’ 347
The economy of the overseas Chinese 350
23 Zlotys, Rubles, and Leks 356
The new Central Europe 356
Market prices and the planned economy 358
Contents ix
East European finance 362
The move to the market economy 366
24 Transition Economies – Who Lost Russia? 370
The command and the market economy 370
Where do market institutions come from? 373
The débâcle in Russian finance 378
25 Fitting the Pieces Once Again 380
A common international currency? 380
Collapse of rules of behaviour 381
New rules or international monetary institutions? 382
Exchange controls? 383
The role of gold 384
Index 387