C.P. Chandrasekhar

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Why is India moving towards full capital account convertibility, even though it knows about financial market volatility and the recent crisis?

Chandrasekhar: India has adopted a peculiar position on the issue of convertibility. Just before the East Asian financial crisis of 1997 broke, India was all set to make the rupee fully convertible on the capital account. A road map for full convertibility had been drawn up. This would have allowed residents in India to convert their wealth into foreign exchange and transfer it abroad. The crisis sent out a clear signal that this is bad policy and can pave the way for instability and even a currency crisis. That signal prevented the government from opting for such a misguided policy.

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C.P. Chandrasekhar

Triple Crisis Blog invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: There has been a lot of discussion recently about the over-valuation of the Chinese currency. How do we know how much it is overvalued? What would the implications be for US and Chinese workers if the government were to decide to devalue it?

Chandrasekhar: The argument really is that the Chinese currency is undervalued (because it is pegged to the dollar through central bank intervention) and needs to appreciate so as to make the dollar prices of Chinese exports higher and the RMB price of Chinese imports lower.

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Triple Crisis Blog invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. This piece is based on a question from a reader on the over-valuation of the Yuan.

Martin Khor

The problem of global imbalances is widely seen as a major issue to be resolved if the world economy is to be on track for a sustained recovery.  And this problem is also usually discussed as arising from the economic relations between the United States and China.

In this view, the US has been over-consuming beyond its means, thereby having a large trade deficit, while China has been growing as a result of exports, thus earning large trade surpluses and investing them in US treasuries, thereby making the US over-consumption possible.

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James Boyce

Triple Crisis Blog invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Do you think that carbon/pollution/energy taxes could be a mechanism that helps us reduce our use of fossil fuels, while bringing funds to the governments that need them to pay their climate debt?

Boyce: Pricing carbon – via taxes or permits – is crucial to reduce the use of fossil fuels. Taxes and auctioned permits are equivalent: the only difference is that taxes set the price and let the quantity of emissions vary, whereas permits set the quantity and let the price vary. Both yield revenues to governments.

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Ilene Grabel

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Will we finally see an IMF/WB policy that truly acknowledges the rights of the poor and the least developed countries?  Will the reforms of the IMF/WB push for localization and food sovereignty as ways to face poverty?

Grabel: Certainly the IMF/WB have been discussing the poor and the poorest developing countries a good deal of late, especially in relation to the effects of the financial crisis on the most vulnerable. And some of the assistance packages that they’ve negotiated have paid somewhat more attention to the most vulnerable groups, such as pensioners (though concrete financial support for the most vulnerable groups has been pretty scant).

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Alejandro Nadal

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Do economists have a successor paradigm to the “invisible hand” theory, in which it is NOT expected that everyone should need to be employed? Perhaps something like Random Welfare, coupled with more environmental respect.

Nadal: First, the invisible hand paradigm should have been abandoned since 1974, when the Sonnenschein-Mantel-Debreu theorem was first published. This result showed that after 200 years, the invisible hand metaphor remained just that, a metaphor. There was never an invisible hand “theory” showing how, in the general case, equilibrium prices were formed. If this was a paradigm, it was more for ideological reasons than “scientific” superiority.

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Ilene Grabel

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: What is the role of the EU in the changing economic environment of the world?

Grabel: A couple of triple crisis entries have dealt with the EU and its relevance for the development community.  See, e.g., here, here, here and here.

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Kevin Gallagher

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: The IMF and the World Bank claim that the only way to deal with the current crisis is through further liberalization. Aren’t globalization and free trade what caused poverty and global warming in the first place?

Gallagher: I’m not sure that these two institutions claim that “the only way” to deal with the crisis is through further liberalization. The IMF has just called for a levy on bank balance sheets and has cautiously endorsed capital controls to stem inflows of speculative capital. They also called for fiscal stimuli a year ago.

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Ilene Grabel

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: The Financial Transfer Tax (FTT) has received a lot of notice in Europe but few mainstream economists in the US are engaging the issue. Is the FTT a realistic option and is it feasible?  How could it be implemented?  Is the IMF likely to include it in the paper they are preparing for the G20 on options to pay for the economic crisis?

Grabel: Many progressive economists and civil society organizations have come out in favor of a FTT. For example, on this blog, see discussion and references to studies of FTTs, and also see the discussion of a recent study of a FTT referenced in the Bretton Woods Update.

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Matias Vernengo

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Would financial reforms that seek to de-link services and overturn Volcker’s rule present an opportunity for banks in emerging countries who still follow these principles to overtake their more established northern counterparts?

Vernengo: The preliminary question to be asked would be why banks in the developed world have an edge in the first place.  Credit creation and international trade in different periods have been for the most part denominated in a single national currency that functions as world money.  The pound had that role during the Gold Standard and the dollar since World War II.  The advantage of financial institutions in the hegemonic country derives from the fact that they lend in the world currency, and have access to a risk free asset (domestic government bonds) and a lender of last resort that can act on a global basis.

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