4-13 Microbes maketh man

Free exchange
Theories on where money comes from say something about where the dollar and euro will go

I have been to Myanmar in July. It was surprising that I can use dollar almost anywhere in the country. Myanmar’s currency is kyat but all the people know the rate and can accept the foreign currency. In Japan we cannot buy things in dollar, or rather we buy dollars.  

Discussion: Why is the dollar accepted in outside of America?
           Should the Yen aim at “the international currency”?

Origin of money is mystery. (1) Does it have its root in the power of state or (2) a purely private matter? This is long running debate.
*3 functions of money: medium of exchange / a store of value / a unit of account => Lots of things can do these jobs

(1) The origin of money is a market led response to barter (物々交換)cost.
Karl Menger, an Austrian economist (1840-1921)
Monetization of an economy starts when agricultural communities move away from substance farming and start to specialize when trade with others becomes necessary. Money evolves to reduce barter cost, with things working better than others. Spices and shells can be used as money.

(2) The state plays a bigger role in the origin of money
Charles Goodheart, a professor of LSE (1936-)
Metals are used as money because they are durable, divisible and portable but raw metals are hard to assess the value so there is another reason why metals are used as money. Metal money has circulated as coins. Minting(鋳造) developed not as a private sector attempt but government operation. It means the state plays a bigger role in the origin of money. The fiscal wing of government has a huge incentive to move its economy away from barter because it needs to measure income and expenditure to set taxes.

Dollar and euro
The columnist suggests that only “informal” monies can spring up purely privately. And he points out that a good example of “informal” money is the dollar that is used in outside of America. Because of informality, the shift from dollar to Yuen or other currencies is swifter than many assume. He explains the euro has a deeper problem because it lacks a foundation in the power of ether market or the state. 







4-11 Another fine mess

Spain and the markets
A full bail-out of the euro area’s fourth-largest economy is looming

Why I picked up the article
We are not so interested in and surprised with EU’s current bail-out situation. “Again? Yes, I know” this is our frank impression. “The next country is Spain…” We always heard about that. But we don’t know so much “Why Spain? “ This article explains why Spain is patient and why they need a full bail-out.

Why is Spain in hard situation and who should be responsible for a bail-out?

(1) Spains ten-year bond yields touched 7.75% on July 25th.
Previous bail out of Greece, Ireland and Portugal occurred not long after rates has surpassed 7%. (Japan’s ten-year bond yields is around 0.74% on August 3rd.

(2) Spains situation does not look bad since their government continues its effort.
Public debt, 69% of GDP is lower than Italy’s 120% less even than Germany’s 81%. The budget deficit is high but prime minister announced more tough austerity measures. European finance ministers approved to put €100 billion partial bail-out for Spanish bank.

(3) Why does Spain need full bail out?
Mario Rajoy failed hard choices at the beginning, notably cleansing of the banks. Spains high external debt (the highest in euro area) is the biggest worry. Foreign capital has been fleeting over the past year. That has weakened the banks and its economy.

(4) Choices
The European Stability Mechanism (ESM), their new permanent rescue fund would be a hope but ESM cannot come into force until September (Germanys court will rule) They have some cash reserve and can still borrow at short maturities and can use the euro area’s temporary rescue fund. It may possibly survive the summer. But Spain needs €385 billion to cover its budget deficit and will consume almost all of their rescue fund. If the European central bank (ECB) starts buying their bond, nerves will calm but it doesnt want to.

6 members and 5 articles we had this week. Last week I tripped to Vietnam and Myanmar so I was absent 10th discussion in season 4.