Regarding quantitative easing, FT Alphaville seems to think it’s already happening.

There are also clear political motivations for the Chinese to continue as the arrangement gives them enormous influence in Washington that they would not otherwise have.

If the US decides to scale back its imperial reach in a big way – perhaps to cut military spending or out of sheer exhaustion – then the Chinese may re-evaluate the political return on their investment.

I don’t really see the point of this. If the IMF takes dollars and issues SDR’s, then who bails out the IMF, if there is a currency mismatch between SDR’s and dollars? Also what does the IMF do with all of the dollar assets that it gets?

The problem with SDR’s is that it’s really difficult to have any sort of currency that no one really uses. What’s the point in putting your money into something that you can’t use to go to a corner store somewhere and buy a stick of gum?

No they aren’t. Chinese exports get a lot of attention because they are politically sensitive in the West, but all this attention overstates the degree to which Chinese economic growth is export driven.

There are parts of the Chinese economy that are export driven, but there are also very large parts that are not.

df: Now according to you : what are the chances that home governments in exchange for the help will ask for employment to be saved in the home countries and suppressed elsewhere ?

They would if they could, but they can’t so they won’t. One big difference from the 1930′s is that multinational corporations have global supply chains. Tariffs would be suicidal for General Motors since it means that it couldn’t important any parts for its American factories.

The correlation between dollar/oil price is large. Is it possible that the oil-producing states are in fact in the euro zone and have recycled their dollars, surreptitiously or otherwise, by paying for euro assets? Now that the price of oil has fallen, they are now converting in the other direction.

might they to (a reallocated) SDR?

http://ftalphaville.ft.com/blog/2008/11/05/17858/a-paper-gold-reserve-system/

Gordon Brown said Tuesday the surplus-holding Gulf States, many of whom already peg their currencies to the dollar, were ready to extend money to an IMF bailout fund at the G20. The question is could that money be channelled through an SDR framework?

SDRs potentially address another problem facing the system too. As Fred Bergsten, director of the Peterson Institute for International Economics, wrote in the FT a year ago, they could help restore faith in the dollar itself. His argument being, surplus nations in many cases have no choice but to bankroll the US debt, as diversifying into non-dollar denominated assets would have drastic consequences on their own currencies.

“Many dollar holders, including central banks and sovereign wealth funds as well as private investors, clearly want to diversify into other currencies. Since foreign dollar holdings total at least $20,000bn, even a modest realisation of these desires could produce a free fall of the US currency and huge disruptions to markets and the world economy.”

He adds the problem is further heightened by the fact that none of the countries into whose currencies the diversification would take place want to receive these inflows either. Through an SDR substitution account though the following could happen:

“Instead of converting dollars into other currencies through the market, depressing the former and strengthening the latter, official holders could deposit their unwanted holdings in a special account at the IMF. They would be credited with a like amount of SDR (or SDR-denominated certificates), which they could use to finance future balance-of-payment deficits and other legitimate needs, redeem at the account itself or transfer to other participants. Hence the asset would be fully liquid.”

Via this system all countries would benefit, he says:

“Those with dollars that they deem excessive would receive an asset denominated in a basket of currencies (44 per cent dollars, 34 per cent euros, 11 per cent each yen and sterling), achieving in a single stroke the diversification they seek along with market-based yields. They would avoid depressing the dollar excessively, minimising the loss on their remaining dollar holdings as well as avoiding systemic disruption.”

Meanwhile, the US would be spared the risk of higher inflation and potentially much higher interest rates that would stem from an even sharper decline of the dollar. As the cost of protecting against US sovereign default in credit default swaps increases, it’s certainly a case worth considering, especially as a proposal for a special one-time allocation to double the number SDR in the system is already in place. To go through, the proposal needs three fifths of IMF members (111 countries) with 85 per cent of total voting to accept it. As of March 2008, 131 members with 77.68 per cent of voting power had accepted it – reflecting the level of the demand for the measure. Approval by the US would now put the amendment into effect.

That view has some merit, but, unfortunately, I’ve met lots of people in “civilized” (no doubt you would put the Middle Kingdom in that category) who have all kinds of lofty ideas and would, if endowed with any political power, fight like lions to let Joe taxpayer ( a much less civilzed, possibly subhuman being) pay for development assistance. Anyway, I’ve no strong feelings against development assistance as long as it benefits me. If it does not, as with any kind of policy, I’ m against it.

But there are people, even politicians in weakly contested systems, who believe that rich country generosity can help the people in poor countries achieve a higher standard of living. These people are, of course, paternalistic. The same term the eminent scholar of socialist or centrally planned systems, Janos Kornai uses.. So perhaps the good folks in the State Council harbour similar feelings towards places like Guizhou and certainly towards Congo. Paternalism is an attitude of politicians that leads to suboptimal results and I have little respect for it, of course unless someone feels paternalistic towards myself.

http://www.chinastakes.com/story.aspx?id=820