4 ms·
Right. For a functioning economy with a functioning government, functioning central bank, and functioning currency. But that is not Zimbabwe in the 2000's. Z
by mapt 11y ago
Right. For a functioning economy with a functioning government, functioning central bank, and functioning currency. But that is not Zimbabwe in the 2000's.
Zimbabwe became a dystopian cliché of hyperinflation and societal breakdown, with 80% unemployment and 100% inflation per day. It is the current example we use when we summon up the absurdist "wheelbarrows of currency" imagery. Basically, they were limited to a barter economy, with a thick layer of authoritarian interference in what became a very limited system of production and distribution of goods & services.
To create a currency union that's sustainable, you have to commit to a fiscal union (where there is stable net wealth transfer from New York to Nebraska through things like social security), and/or to a very stiff amount of labor mobility & remittances (where internal migration to the site of available employment is as common as in the Dust Bowl). The EU did not have enough of the latter (for a bunch of reasons), and chickened out on the former; In that case failure was unavoidable, and credit availability simply delayed an inevitability.
You can give up 'monetary sovereignty' in a long-term stable manner and sustain a functioning economy if you're willing to do these things. The United States did. We have whole regions that would be depopulated without social security, Medicare, and welfare to keep the population alive without its manufacturing base. We have abundant internal migration.
But Zimbabwe is a whole other sort of thing. They didn't relinquish much of anything when they gave up their currency; They had to build a new economy from the foundations on up.
- paublyrne 11y agoTo create a currency union that's sustainable, you have to commit to a fiscal union I have come to agree with this. I was a supporter of the Euro and Emu since the 1990s, but I think I've been convinced that trying have a single currency without full fiscal union is folly. You should choose to either have balkanised currencies, or a federal financial bucket, meaning the richer countries subsidise the poorer ones. We went with Option C in Europe, and I don't have a lot of confidence that the Euro can survive in the long run in the current system.
- HiLo 11y agoAgreed. I simply can't imagine what would happen if our federal fiscal policy was left up to the 50 states individually. Jesus that would be bad. Texas, my personal and favorite example, would go from an economic powerhouse to unable to support its economy, ever, if anything went south, pun intended.
- polishninja 11y agoI agree. Without a fiscal union, you just have a fixed exchange rate. Look at the Euro for example. Since Greece and Germany make separate fiscal policies but have the same exchange rate (due to the Euro), if their labor force output (GDP) doesn't match then the real cost of the Euro goes up in the lower output country (Greece). They lose the ability to adjust policies based on their current economic situation. Each separate state in the US has a fixed exchange rate with each other (1 USD = 1 USD), but our fiscal policy is administered by a central authority that adjusts for overall US conditions, not just individual states.
- mapt 11y agoThe more interesting take I've read on this is that the financial planners who instituted the Euro certainly saw this coming, and were using it in order to force through fiscal integration a decade or two down the line once they had achieved crisis conditions necessary for massive change.
- dools 11y agoYes to create a stable currency union you need a fiscal union. The EMU is doomed and the Euro along with it. The answer to the Zim problem is not the adoption of multiple currencies they don't control, though, unless they are just completely abandoning the goal of self governance altogether.
- Turing_Machine 11y ago"unless they are just completely abandoning the goal of self governance altogether." That may be exactly what they're doing. Mugabe can't live forever, and his cronies could well be selling the country off to China, with an exit strategy in place to spend the rest of their lives in comfort in a third country.
- polishninja 11y agoThey did have control over their currency and looked what happened. The big problem they face now is trust. If they came out with a new currency, no one would trust it enough to use it in everyday transactions. Regaining trust in the government and their currency will take quite some time.
- fspeech 11y agoHongkong has a peg to the USD, while China used to. It is not optimal, but I wouldn't say it is unsustainable.
- dools 11y agoWhen China pegged it had completely unassailable reserves of USD. Pegging currency leaves you highly vulnerable to speculative traders and limits the extent to which you can pursue fiscal policy that promotes the prosperity of the populous.