Emerging markets already account for more than half of the global economy. Moreover, China already is the largest trading nation, and it is poised to become the largest economy. But its renminbi is not a currency people trust-not even in China. It is not convertible, freely traded, or subject to free capital flows. If China becomes the world’s leading economic power, it will be the first time in history that the world’s leading economic power doesn’t control the world’s fiat currency.
There is no such thing as a free lunch
Milton Friedman once said that “inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” In other words, inflation occurs when there’s too much money chasing too few goods, as in the boomtowns of the American West during the gold rush or in the Great Plains during the recent shale oil boom. It follows that governments would be wise to control the supply of money if they have their citizen’s economic well-being in mind. That’s one way of thinking about monetary policy(that is, the policy adopted by the central bank authority of a country). For every economist who agrees with Friedman’s approach, there’s another who believes that this monetary orthodoxy is way too rigid in dealing with the ups and downs of the business cycle. Friedman was correct, however, in arguing that “inflation is taxation without representation,” something that messes up markets, confuses decision-makers, and eventually impoverished the population He was in favor of a steady rate of monetary growth, and he thought that a computer would do a much better job than the Federal Reserve at managing monetary policy.
2030 by Mauro.F.Guillen: 203–208
