What “fx strategy”?

Do not over-nuance MMT

Call me a dirty dirtbag MMT dude, but I do not think “exchange rate policy” needs any “strategy.” The strategy is to have your currency on the books of the fx dealers, that is all.¹ You just want some exchange rate. The fx rate in an MMT aware nation is of should be of no political consequence domestically — if the government knows what it is doing and the public at large do too — “big if,” you say? (yeah, that’s ‘dreaming’ but so what? I like to write sometimes without realpolitik constraint, to idealistically look to “the possible,” and “what can be done” not just what is done nor what a boring down-to-earth under-the-earth doomer thinks can be done).

((There are operational matters about how the fx swaps are made, and low hanging fruit perhaps to eliminate punitive fees and whatnot, but that’s all marginal stuff, not unimportant for poorer nations, but this little effects my main argument today. Poor nations need massive public education to inoculate people against fear of shifts in fx rates and inflation indices, and the domestic policy wisdom to go with such education — just more pressingly than in wealthier higher GINI nations.))

So I am not really all that keen on seeing this stuff 👇🏼from Phil Armstrong.👇🏼

(The graffiti is mine. Apologies to Banksie.)

I very much appreciated Randy Wray’s recent chat to the channel ClassUnity. It is good to admit “we made mistakes.” Failing to provide nuance is a mistake.

Example: Never say, “Exports are a cost, imports are a benefit” because it is false, by MMT accounts it is false and actually backwards … if people have “cost” in mind being tax credit units. Most people have the money in mind. Most people operate as de facto goldbugs. Spend two extra words then, to get it 100% correct:

Exports are a real cost, imports are a real benefit.

This is almost always true, even for a poor nation in the global south. (Do not import toxic garbage and foreign politicians², do not export what you need for domestic consumption happiness.) How a few characters make all the world of difference. You are stark raving mad to think otherwise. But it is even better if the wealthier world just give things to the poorer nations/peoples, without the need for export offsets.

Normative economics is the opposite of religion, it is better to receive than to give.³ True. But spiritual economics is not the same as normative economics, it is far better to give when people are in more need than ourselves. If you cannot see this is true I cannot help you become a non-ꕒꗍꖀ𐝥ꗍꘝꕯꖡ person.

We can talk all day about how neoliberal governments make backwards policy responses when fx rates do blippy things. Let the traders get an ulcer (is my advice). And protect your farmers, help them to diversify, if they are exporting because you are over-producing. If you are over-producing as a food basket for the rest of the world, fine, but don’t complain when your exports are no longer competitive. That means someone else is taking over the “giving”. Let them. It is better to receive when someone else is a better giver. Your farmers do not have to die or sell their shirts. Just make the domestic policy adjustments so everyone at home is whole.

Float the exchange rate, then you do not care what it is, that’s the whole purpose of a float. But if you are going to help them (the neoliberals) get it right⁴ you are going to have to have them fully MMT educated. But when they are fully MMT educated they need no fx strategy. They are no longer neoliberals. The strategy is Bruce Lee fighting strategy, to “be like water my fwiend.”

Big fluctuations in fx rates are almost of no consequence unless they get locked-in. When they get locked-in then it alters the balance of winners and losers domestically, re: export firms versus import firms (importers including most households — in the macro being not insignificant). Understood as, “of all imports used in final demand (households + government + capital formation), what share is for households?”, then OECD‑style decompositions treat “imports used for final consumption expenditure by households” as one column alongside government and capital. In most advanced economies, that household column is the largest, often well above 50% of final‑use imports For PCE (personal consumption expenditure) I think households are at least 10% of import consumption.

The government policy response should not be some change in fx strategy. The fx rate does not matter! You had winners, you had losers. Whoopty-doo. The government response is to rebalance domestically, with shift in tax burden or investments. It is not laissez faire to leave the fx rate alone. It is policy freedom. Unless there is some sort of corruption or abuse, then the natural fx policy is no policy. It is counter-intuitive to normative economists, no doubt, (or “no doubt?”).

But a lot of MMT is counter-intutitive (unfortunately). But that is an education problem. MMT could easily in our lifetimes become totally intuitive, I think it is nearly there for me. I do not really like the Steve Keen attitude, I do not want to be a contrarian. I’d rather be normal and boring. But moral sensibilities prevent that. (I’d even rather my moral sensibilities were all screwed up and someone told me it was ok to be normal!)

A floating exchange rate is not a loss of control, it is superior control, it frees domestic policy from the artificial constraint of a fixed exchange rate. The fx float is an extra degree of freedom. You can use it for full non-ꕗꖹꝆꝆꕷꖾꕯꖡ job employment, for one thing. Probably a lot more. Depending on what real goods you can get imported.

1. And that is not rocket science. It’s good to not be too truly overwhelmingly corrupt with your domestic government. You know. So the fx dealers don’t get too overly antsy with your currency swaps.

2. You say “samesame”? 🤣

3. Jo,ho! Jolly good Wilde, was that one of Mosler’s?

4. That is to say, “not be neoliberals no more, mate!”