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Date Posted: 14:30:18 4/11/23 Tue
Author: Jasper
Subject: Macroeconomists always analyse finances and economics from a statist viewpoint

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That such a distinguished economist can be so ignorant of the mechanics of credit creation in the banking system is a perfect illustration of the lack of attention the profession has afforded to credit. Keynesians (such as Krugman), monetarists, and even free marketeers in the Austrian school have different and incorrect theories over how bank credit actually arises. It is really disarmingly simple: loans are created concurrently with deposits through the magic of double-entry bookkeeping. Deposits then become detached from the loans that created them as they are paid away. And banks then work together through clearing systems and wholesale markets to keep their books balanced.

Why is this relevant to Triffin’s dilemma? The answer is that so long as it has access to efficient clearing systems and wholesale credit markets in the relevant currencies, any bank can create credit in any currency it wishes to. This automatically frees trade payments from the requirement that there must be a substantial quantity of currency in foreign hands for that currency to act as a reserve currency. Credit for trade settlement is mostly self-extinguishing anyway, and the role of a reserve currency has more to do with state manipulation of exchange rates.

As to Magnus’s claim that capital outflows could destabilise China’s banking system, that is a strawman argument. As he points out, there are exchange controls, but China need not dismantle them. Just as European banks create eurodollars, Chinese and other banks can create yuan credit for trade financing and for settling external commodity transactions. In fact, the two yuan currencies already circulate separately. And if through its disuse, the dollar and other western currencies decline against the yuan, it might even suit the Chinese to relax exchange controls to accommodate capital flowing out of the US into Chinese projects in Asia. But that is for consideration later.

https://kingworldnews.com/golds-rise-and-how-the-world-is-changing-before-our-eyes/

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