Coppola Comment

It’s election season in the U.S., marred only by the minor complication of a criminal trial involving one of the candidates. Trump is on the campaign trail, and he is going big on trade policy. Or rather, trade lunacy. Here’s Gavin Bade at Politico attempting to explain Trump’s trade policy:  Trump is considering a 10 percent universal import tariff, the former administration officials said, and one result of that policy could be to make the dollar weaker relative to other currencies.  This is economic illiteracy of a kind I haven't seen since the heady days of Brexit . Or - more accurately - since the last time one Robert Lightizer was the United States trade representative. He is, once again, setting Trump’s trade agenda. And he appears to be no better informed than he was last time. Why do I say this policy is economically illiterate? Because universal import tariffs don’t weaken the currency relative to the currencies of trade partners and competitors. They are much more...

  A cryptocurrency has just re-enacted the Weimar hyperinflation. Yesterday, the price of the cryptocurrency TITAN crashed to zero, and its related stablecoin IRON fell off its USD peg, trading as low as 69 cents to the dollar. It was a sudden and dramatic collapse that left investors shocked and bewildered. Equally shocked and confused, the coins' issuer launched an immediate investigation:  Iron Finance issued its post mortem a few hours later. This is the key paragraph: Later, at around 3pm UTC, a few big holders started selling again. This time, after they started, a lot of users panicked and started to redeem IRON and sell their TITAN. Because of how the 10mins TWAP oracle works, TITAN spot price drops even further in comparison to the TWAP redemption price. This caused a negative feedback loop, as more TITAN was created (as a result of IRON redemptions) and the price kept going down. A classic definition of an irrational and panicked event also known as a bank run. At t...

In my last post , I said that the fact that a government can buy anything that is for sale in its own currency is not sufficient to confer monetary sovereignty. A country which is dependent on essential imports, such as foodstuffs and oil, for which it must pay in dollars is not monetarily sovereign. Some people disputed this on the grounds that such a country could earn the dollars it needs through exports. So I thought I would write a post discussing how realistic this is in practice. Strictly speaking, the only country in the world that can always pay for everything it needs in its own currency is the United States. However, most developed  countries that issue their own currencies have deep and liquid FX markets that enable them to exchange their currencies freely for other currencies; many also have swap lines with the Federal Reserve. Eurozone countries don't issue their own currencies, but the bloc as a whole issues the world's second reserve currency. It is not go...