Mediterranean additions: Malta, Cyprus

Possibilities: Croatia, Macedonia, Turkey

The Eurozone’s markets depth and breadth are expanding.

Thanks for your interest in my views! Actually, the euro is steadily growing as a reserve currency without a major current account deficit, but that is mainly due to the propensity of the eurozone private sector to save abroad. In the US case, where the private sector seems to be less willing to save, it would have been prudent for the government to coordinate the saving.

The passage you quote is mine; Giscard d’Estaing is responsible for the phrase “exorbitant privilege”. I would not yet say that the US has chosen to create an excessive amount of money, although it does seem to be erring on the easy side. To judge this, however, I would look at base money growth rather than M3. Deposit money is matched by debt, so it is not clear exactly how inflationary deposit money growth is, and since the credit crisis has pushed SIVs back onto banks’ balance sheets, I would not be concerned to see quite rapid growth of M3 at the moment (the broader monetary aggregates are liable to distortion by such shifts between different types of asset, which is why the UK stopped publishing M3).

Considering that any currency that has been used as a de facto reserve has resulted in a major deficit, there are compelling intuitive arguments in favor of what Twofish said.

On your blog you mention this as a secondary benefit, while it was Valéry Giscard d’Estaing’s (who you quote) priamy objection.

“A reserve currency issuer also has the option to create an excessive amount of money to reduce the real value of its outstanding debt and help finance its government, but exercising this option is likely to deplete its reserve currency status.”

If you say that the US could have been in a different situation today, if they had not exercised this option to a degree so spectacular that M3 numbers now have to be secret, then… yeah, sure.
But more than that, this would also have meant a completely different US economy over the past 60 years and would have made impossible the kind of public consumption, investment and Government spenditure the US has had. It seems to me a bit too counterfactual to actually consider, when history clearly teaches that when a country has the option of exploiting its reserve status, it invariably does.

Incorrect. It would have been possible for the US to have built its own state savings, either in the form of foreign exchange reserves in euros, yen and sterling, or holdings of non-reserve currency foreign assets in the form of a SWF. I explain how in more detail in a post on my blog at: http://reservedplace.blogspot.com/2008/04/us-economic-policy-shot-in-foot-2.html

I do agree with you about the usefulness of foreign exchange reserves though. And, as I have pointed out on Brad’s blog before, the US foreign exchange reserves are as inadequate as China’s are overadequate, a US policy that seems to have arisen by neglect rather than design.

No running necessary! You can just stick your head in the sand and pretend there’s nothing to it. Everyone with influence does. Its very effective .

Prevented a run on their currencies and immense subsequent transfer of wealth and assets, meaning that whatever adjustments could be made gruadually rather than risking socially destabilizing riots after savings were wiped out.
The “necessary adjustments” or structural adjustments as it were are easy to preach from afar. For some reason it appears as all the others (meaning non-western countries) should always look at strictly economic arguments, and indeed in the days were the dreaded World Bank was a factor, they were forced to – when they didn’t have reserves to tell the bank to go to hell.
In the US as well as Europe, we know how to turn those arguments about necessary adjustment around with reference to what is politically expedient, or indeed possible or better yet beneficial. “Too big to fail” is just that. In the Asian currency crisis case, it was not a big company, but an entire region with the results being poverty, death and ruin. If you are a politician you cannot be expected to preach such policies.