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Why You Need American Dollars to Mint Australian Ones

by the Center for Geoeconomic Studies
June 6, 2011

All countries with central banks exercise monetary sovereignty, right?  Nobel economist Paul Krugman certainly thinks so.  “Wow,” he wrote, after reading Benn Steil and Manuel Hinds say otherwise in the Financial Times on May 24, “Have these guys ever talked to anyone in Sweden, which doesn’t need euros to create more kronor?” Fortunately, we have the data, which is better than talk.  Since Mr. Krugman throws Australia into the mix, we will too.  As the figures above illustrate, when the Swedish and Australian central banks expanded credit dramatically during the recent financial crisis their net foreign assets plummeted.  And this is not merely a crisis effect, as the three decades of Australian data show. So it turns out that you do indeed need euros and (American) dollars to create kronor and Australian dollars.  A country that plows on creating credit without them eventually becomes a ward of the IMF.

Steil and Hinds: Keynesians are complacent about the dollar
Steil: Hayek and the Dangers of Monetary Nationalism
Steil and Hinds: Money, Markets, and Sovereignty
Hinds: Playing Monopoly with the Devil

Post a Comment 7 Comments

  • Posted by Diogenes

    Interesting and provocative post except you don’t actually answer your posed question of why you need USD to mint ASD.

  • Posted by RN

    Diogenes responds:

    “Interesting and provocative post except you don’t actually answer your posed question of why you need USD to mint ASD.”


  • Posted by truth

    Do you not understand that printing money to facilitate government spending under current arrangements would not change the net domestic assets of the central bank? Obviously you do not. The central bank would hold additional domestic assets (government bonds)and also addituional domestic liabilities (higher bank reserves). The monetary base would increase. No change in net domestic assets of the central bank. Of course the central bank can affect the monetray base via forex market transactions, but that is irrelevant and more often about intervention to lean against the wind on exchange rates.

  • Posted by indo

    This blog has proven to be a nonsense. Read more at

  • Posted by joebhed

    If the Center desires to discuss the United States Dollar as the core element of global commerce, and the implications of the $US standard for both this country and for all other nations, then, please do.
    It is well long overdue for discussion, much past timely.
    This is perhaps the most non-sensical of postings by the Center. It is worrisome actually that this understanding can have support within the CFR.

  • Posted by Jon

    Very good suggestion. But I suspect the necessary receptivity will be lacking.

  • Posted by David Blake

    This shows a stunning ignorance of really basic facts. You certainly do not need to have US dollar to print Australian dollars.
    It might be true that if the RBA prints lots of Australian dollars the exchange rate will go down. But that is a completely different thing.

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