If you’re like most of the people I speak with, you’ve probably never thought of money and the pursuit of wealth as a game. When I talk with people and ask them about it, they generally say something like this to me: “Money is definitely not a game. It’s serious business.” The first step in the Busting Loose Process is to really “get” that everything within your financial world—income, net worth, investments, savings, taxes, expenses, invoices, accounts receivable and payable, profits, and so on—is part of an amazing, elaborate, gigantic, unique, and complex game. I introduce the basic rules of The Money Game in this chapter and then go into more detail in later chapters. sche_c01.qxd 6/29/06 11:16 AM Page 1

The Rules of the Game

We survey households about their expectations of the economic fallout of the COVID-19 pandemic, in real time and at daily frequency. Our baseline question asks about the expected impact on output and inflation over a one-year horizon. Starting on March 10, the median response suggests that the expected output loss is still moderate. This changes over the course of three weeks: At the end of March, the expected loss amounts to some 15 percent. Meanwhile, the pandemic is expected to raise inflation considerably. The uncertainty about these effects is very large. In the second part of the paper we feed the survey data into a New Keynesian business cycle model. Because the economic costs of the pandemic have not fully materialized yet but are nonetheless (a) anticipated and (b) uncertain, private expenditure collapses, thereby amplifying and bringing forward in time the economic costs of the pandemic. The short-run economic impact of the pandemic depends critically on whether monetary policy accommodates the drop in the natural rate of interest or not.

https://www.clevelandfed.org/~/media/content/newsroom and events/publications/working papers/2020/wp2012.pdf

News and Uncertainty about COVID-19: Survey Evidence and Short-Run Economic Impact

Generalized financial volatility is capitalism's Achilles' heel. And nowhere is the problem of controlling such volatility more acute than in monetary and exchange-rate relationships across countries - the central theme of this book. The Rules of the Game brings together essays, written over the course of thirty years, by a major figure in the field that analyze and compare a wide variety of important international monetary regimes. These range from the establishment of the gold standard in the nineteenth century through Bretton Woods, the dollar standard, floating exchange rates, the European Monetary System, to current proposals for reforming world monetary arrangements. The essays are unique in that they specify precisely the rules of the game for each international monetary regime - past, present, and future. For ease of reference, the book offers boxed summaries of each set of rules and then discusses their advantages and disadvantages from the gold standard down to the author's proposal for a common monetary standard for the twenty-first century. Part I assesses each monetary regime's success in stabilizing prices and exchange rates, while fostering international trade. Part II addresses a central question each country faces: what are the benefits of giving up exchange-rate flexibility to join a common monetary standard? Part III focuses on overall monetary reform for limiting financial volatility and exchange-rate crises in the next century - including whether or not Western Europe should adopt a common currency. The last chapter synthesizes and updates the author's previous writings on rationalizing monetary arrangements among the major industrial countries of North America, Western Europe, and East Asia.

The Rules of the Game: International Money and Exchange Rates

It has been argued that central bank cooperation was important to the working of the gold standard before 1914. This article takes a critical view of the central bank cooperation thesis and, relying on new archival research as well as on secondary sources, offers an alternative picture of central bank relations during the nineteenth century. Central bank cooperation was exceptionally never reciprocal and always failed to institutionalize: scholars seeking to explain the stability of the gold standard will have to look in other directions

/pdf/central-bank-co-operation-in-historical-perspective-a-1n4g6e6o6b.pdf

Central Bank Co-operation in Historical Perspective: a Sceptical View

Economically developed countries have been able to reduce
 their poverty level, strengthen their social and political institutions,
 improve their quality of life, preserve natural environments and achieve
 political stability [Barro (1996); Easterly (1999); Dollar and Kraay
 (2002a); Fajnzylber, Lederman, et al. (2002)]. After the World War II,
 most of the countries adopted aggressive economic policies to improve
 the growth rate of real gross domestic product (GDP). The neoclassical
 growth models imply that during the evolution between steady states;
 technology, exogenous rate of savings, population growth and technical
 progress generate higher growth levels [Solow (1956)]. Endogenous growth
 model developed by Romer (1986) and Lucas (1988) argue that permanent
 increase in growth rate depends on the assumption of constant and
 increasing returns to capital.1 Similarly, Barro and Lee (1994)
 investigate the empirical association between human capital and economic
 growth. They seem to support endogenous growth model by Romer (1990)
 that highlight the role of human capital in economic activity. Fischer
 (1993) argues that long-term growth is negatively linked with inflation
 and positively correlated with better fiscal performance and factual
 foreign exchange markets. In the context of developing countries,
 investment both in capital and human capital, labour force, ability to
 adapt technological changes, open trade polices and low inflation are
 necessary for economic growth.

https://thepdr.pk/pdr/index.php/pdr/article/download/2281/2281

Economic Growth and Its Determinants in Pakistan

The paper's thesis is that the US dollar, despite the inevitable erosion of market share that it will suffer at the hands of the euro, will remain the most important international currency The transaction domain of an international currency depends on its ability to lower transaction costs relative to alternative currencies The EMU financial markets will not be as integrated, and thus as liquid, as the US financial markets for quite some time, thus favoring the use of the dollar as a medium of exchange Inertia and reputational considerations further favor the dollar The future value of the exchange rate dollar-euro will depend on economic fundamentals more than on portfolio shifts Portfolio shifts argue for an appreciation of the euro; but fundamentals can swamp the effects of portfolio shifts Should the EMU fundamentals reflect the spirit of the Maastricht Treaty and the Growth and Stability Pact, the chances for a euro appreciation will increase Some caution, however, is in order because the ECB is a new and untested central bank where consensus for a conservative policy may be harder to achieve than can be gleaned from a literal reading of the Maastricht Treaty

Dominant Currencies and the Future of the Euro

This paper argues that the international monetary system will evolve into a bipolar structure consisting of a dollar area and a euro area, each of which attracting other countries to their gravitational centers. A deepening and widening of NAFTA and the EU will enlarge the sphere of influence of both currencies; trade wars will restrict them. The yen is a big question mark. The deep and still unresolved financial crisis in Japan works against the enlargement of the yen; deregulation of its financial markets, with the attendant decline in transaction costs, goes in the opposite direction. Our conclusion is that the yen area will be much smaller than the dollar and the euro area and, consequently, the two large blocs will shape the international monetary system of the 21st century in a critical way. We also discuss feasible scenarios of interaction between currency blocs. A large EMU works in favor of cooperation because fewer players imply lower decision-making costs in reaching a cooperative solution. The relative closeness of the EMU and the United States, on the other hand, works against cooperation and in favor of benign neglect. Exchange-rate agreements are fragile unless supported by strong commitment to economic policy cooperation, and such a commitment may well be premature. The article advocates that the United States and EMU target common inflation rates, an idea that Keynes proposed back in 1923.

From the Gold Standard to a Bipolar Monetary System

The paper maps the dollarization process in Vietnam since the beginning 1990s. We analyze the pros and cons of complete currency substitution. We discuss different forms and degrees of dollarization, and why some countries dollarized and others not. Further, the paper analyzes the case of partial dollarization, its implied risks for financial sector stability and the underlying dynamics of dollarization. Finally, we describe ways to reverse dollarization. The main conclusions are that dollarization is not a viable exchange rate regime option for Vietnam; furthermore, the current status of a partly dollarized economy poses considerable risks for financial sector stability and makes the country prone to exogenous shocks. The recent dollarization of banks’ loan portfolio has considerably increased systemic risk. The foreseeable opening of the Vietnamese economy will significantly increase the risks related to dollarization.

Dollarization in Viet Nam

The paper starts with the assumption that the Mercosur countries have decided to pursue monetary integration. These countries have essentially two options: a decentralized monetary union (MU) whereby each member country either pegs to the U.S. dollar or dollarizes outright; or a centralized MU with its own currency, its own central bank, and the adoption of common minimum financial standards. A centralized MU is preferable to a decentralized one, although it is more complex and involves significant institution building. On the other hand, a centralized monetary union enjoys the flexibility of counteracting union-wide shocks and gives member countries a say in the conduct of the common monetary policy; neither feature is present in a dollarized economy. A centralized monetary union cannot be built overnight: it took 30 years for EMU to become a reality. We stress a rather long transition approach during which member countries give independence to their national central banks and pursue inflation targeting, while adjusting to idiosyncratic shocks. The final phase would be consummated when economic and financial integration would have made shocks sufficiently symmetric in the region and inflation rates would have converged.

A Centralized Monetary Union for Mercosur: Lessons from EMU

We survey the ongoing debate on pros and cons for an early and comprehensive liberalization of capital flows by emerging economies. We examine the main theoretical assumptions that would lead to positive effects on output growth and consumption volatility and reflect them with recent literature on market imperfections and information deficiencies. We find little evidence for a positive effect of free capital flows on economic growth and stability for emerging economies. We apply these main results to Vietnam as an example for an open emerging economy and discuss the main explanatory factors that may lead to negative impacts of an early and premature liberalization of capital flows. For small, open economies, absorption capacity for capital is limited. Excessive capital inflows might cause Dutch disease phenomena and asymmetric information might trigger an inefficient use of capital. In particular, we stress potential negative impacts of capital flows on the currency risk premium. Finally, we argue that for a partly dollarized economy as Vietnam a premature liberalization of capital flows might significantly increase financial sector instability. In conclusion, we emphasize the importance of a prudential sequencing of capital account liberalization and strong domestic institutions such as an independent central bank, proper financial regulation and supervision and macroeconomic stability as necessary pre-conditions.

Andreas Hauskrecht

Papers

Dominant Currencies and the Future of the Euro

From the Gold Standard to a Bipolar Monetary System

Dollarization in Viet Nam

A Centralized Monetary Union for Mercosur: Lessons from EMU

Capital Account Liberalization for a Small, Open Economy - The Case of Vietnam