The U.S. Dollar: The Modern Day Bancor

EMerging Equity

By Eugen von Böhm-Bawerk

Dollar2 - Flickr - Tilley441According to Belgian-American economist, Robert Triffin the country whose currency have become the global reserve currency must be willing to supply enough liquidity to satisfy global needs. This obviously raises an interesting question for the Federal Reserve with regard to their monetary policy execution. On one hand, they need to consider the best course of action for the domestic economy, while on the other also take into account effects on global financial markets and corresponding capital flows.

The Federal Reserve Act of 1913 and its many amendments have obviously been interpreted by Congress to apply only to the domestic US economy. Specifically, the Federal Reserve’s statutory objective, as outlined in the Humphrey-Hawkins Full Employment Act of 1978, is to maintain long-run growth- and price stability, which will foster full employment. Note that there is absolutely nothing in the act about creating stable funding conditions for the estimated…

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