Sunday, July 26, 2009

Should the US break down the dollar ?

"Look at the US where a single currency is shared by 50 states", was a common objection to economists criticizing the creation of the euro, several years ago. Now the years’ old European debate about the single currency (instead of several national ones) has crossed the Atlantic. In his blog “Macro and Other Market Musings” David Beckworth, an assistant professor of economics at Texas State University, here, ponders the question.

His conclusion:
“I find some evidence that the rustbelt and energybelt may have benefited from having their own currency over the period 1983-2008. What I do not show -- as is the case with most OCA studies – is the (1) added transaction costs and (2) potential political economy problems that would emerge had these regions formed their own currency unions.”

And he refers the reader to his paper here.

Computations made in Europe prior to the creation of the euro did show that the transaction costs reductions were to be rather small. Regarding the political economy “problems” he mentions, readers of this blog (see my post “Why Europe Then?”, June 13) would say that the multicurrency economy would improve the lot of the consumer by reducing the collusive advantage of large firms and tax seeking states: international cartels are much easier to manage when the exchange rates are fixed, and even more so when they are “definitively” fixed.

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