Well it was bound to happen sooner or later. To set the context, Krugman recently wrote that if the dollar is ousted as the global reserve currency, it won’t be a big deal. (I think it would be, and I support such a shift, incidentally, since I think it would limit the American empire.) So when two guys write “Keynesians complacent about the dollar” in the FT, and the bio says one of them is a Hayek scholar or something (the pay wall is going up so I can’t refresh my memory), I am eager to give them the benefit of the doubt.
But alas, their argument against Krugman contained two whoppers: they say if the dollar loses reserve currency status, then the US would be shackled as in the days of the gold standard (if only!), and the US would have to start issuing debt in some other currency. I’ll let Brad DeLong take it away:
The euro is not the principal international reserve currency. Neither is the pound, Nor are Australian dollar, the Canadian dollar, the Swiss franc, or quite a number of other currencies. Yet the eurozone, Britain, Australia, Canada, and Switzerland are very able to issue their own debt in their own currencies. And they are in no wise “forced to operate under external constraints comparable with those imposed by the classical gold standard.” Not at all.
It’s just not true that if your currency is not the world’s principal reserve currency that you cannot issue debt in your own currency. Not true at all.
It’s just not the case that if your currency is not the world’s principal reserve currency that you are “forced to operate under external constraints comparable with those imposed by the classical gold standard.” It’s just not the case.
Why would anybody claim that these things are true?
Why would the Financial Times ever print any claims that these things are true?
I do not understand it…
I can’t even understand what the writers were thinking when they wrote that. As DeLong and Krugman point out, you would think three seconds of reflection would make them realize, “Wait a minute, what we’re saying isn’t true of other countries right now, and they certainly don’t have their currencies as the global reserve one. So….”