Skip to main content

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions

United States dollar and euro coins hanging

The World’s Reluctant Central Banker

In a largely dollarized world economy, the only certain tool for avoiding liquidity crises is a lender of last resort in dollars, and that lender is the US Federal Reserve. The sooner the US and the rest of the world fully recognize this, the safer the world economy will be.

NEW YORK – This is supposed to be the era of powerful central banks, ready to wield their firepower worldwide. Yet the most powerful of all central banks – the United States Federal Reserve – is also the most reluctant to acknowledge its global reach.

Like all central banks, the Fed has a local mandate, focused on domestic price stability and employment. But, unlike most central banks, the Fed has global responsibilities. This tension is at the root of some of the most threatening problems facing the world economy today.

The Fed has global responsibilities for two closely related reasons, neither of which has much to do with the need to avoid the “currency wars” that so concerned former Brazilian Finance Minister Guido Mantega.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/KeVECEo;
  1. marin8_Bernd von Jutrczenkapicture alliance via Getty Images_germanyfinanceminister Bernd von Jutrczenka/picture alliance via Getty Images

    Germany Can Reduce Its External Surplus

    Dalia Marin

    For years, Germany's ballooning current-account surplus has rankled the rest of the world, and German policymakers have thrown up their hands as if powerless to do anything about it. But the external imbalance is a result of policies that are fully within the government's power to change.

    0
  2. op_campanella7_Aurelien MeunierGetty Images_billgatesrichardbransonthumbsup Aurelien Meunier/Getty Images

    Abolish the Billionaires?

    Edoardo Campanella

    Even many of the wealthiest Americans would agree that the United States needs to overhaul its tax policies to restore a sense of social justice. But, notes Edoardo Campanella, Future of the World Fellow at IE University's Center for the Governance of Change, such reforms would not be enough to restart the engines of social mobility and promote greater equality of opportunity.

    11