Publication Date
3-1-2025
Description
This paper provides a brief analysis of alternative interpretations of the balance of payments adjustment problem. The differences between the adjustment process in center and periphery countries is taken into account. It suggests that the process is asymmetric and that the key to the adjustment process lies in the ability of the hegemon, that detains the key currency, to act as a global fiscal authority. The cases of the United States and the Eurozone during the aftermath of the Global Financial Crisis are used to illustrate the argument. The main conclusion is that in a crisis period a fiscal authority that is supranational and has the ability to transfer resources is necessary for promoting a smooth adjustment of the balance of payments, and that redistribution of resources between deficit and surplus subunits is not an effective solution, when there is vicious spiral of contraction and deflation. The question of Dollar Hegemony, and how it differs from the Hobbesian national analogy – i.e. the notion that a national authority would resolve the problems, in this case of international adjustment – is discussed critically. It is noted that monetary hegemonic power extends to the ability of the hegemon to arbitrate, to some extent, which economies can grow without hitting the proverbial external constraint, and that economic development is to a great extent geopolitical in nature.
Type
Working Paper(unpublished)