I am reading Irrationality by Stuart Sutherland. I haven’t yet learned much new about the irrational behaviour of human beings, but I have learned something about the studies that support various conclusions about how human beings tend to behave. Anyway, the point of this post is not to talk about the book, but to complain about some of the commentary on China’s announcement that it will allow the CNY to appreciate. Despite everything we know about the behaviour of committees and the politics of undemocratic regimes, one still reads pieces that assume the Chinese government is a single, inscrutable but all-knowing mandarin. This tells me that, old-hat though the contents of Mr. Sutherland’s book may be to me, they have still to reach many journalists.
A close runner-up in today’s daftness stakes is the Russian president wandering about with a “World Currency” coin. There was a lot of excitement a few months ago when China started talking about alternatives to the dollar as a reserve currency (IMF SDR’s were mooted at the time). Those of a bearish persuasion will now be boring their colleagues with dire warnings about what will happen if the dollar loses its status as a reserve currency. This is all nonsense. First, there is not presently an alternative to the dollar, and more specifically to the US Treasury market. If you have $2tr to invest, there is only one place for it to go. Second, the world currency is supposed to be a basket of other currencies. In effect, it is just an agreement between reserve managers to buy reserve currencies in fixed proportions. Why would they stick to such an agreement if they thought there was a reason to deviate?