Steve H. Hanke

On dollarization and currency boards: Error and deception

A diagnosis of the laws and balance sheets of the monetary authorities in Argentina, Bosnia, Bulgaria, Estonia, Hong Kong and Lithuania is presented. With the exception of Bosnia, all employ active monetary policies and engage in sterilization. Accordingly, they are not currency boards. The methods used to dismantle the Argentine system in 2001, prior to its eventual abandonment, are presented. An evaluation of the Hong Kong system (1997-1998) suggests that its so-called currency board was not a party to counter-speculation in the stock market. Evidence is presented to show how deception was employed by the US and the IMF during the Indonesian currency board debate (1998) as a means to engineer a political regime change.

Money and the Rule of Law in Ecuador

The rule of law is defined and its implications in the monetary sphere are elaborated. When national monetary arrangements fail to comport with the rule of law, “dollarization” is desirable. That policy provides for more stable money and expectations about its future value. The salutary effects of Ecuadors “dollarization” program of 2000 are reviewed. In addition, a manifesto for economic reform in Ecuador is presented. Its elements are: financial integration, fiscal transparency and control, tax simplification and reform, supermajority voting, deregulation, and privatization.

Some Reflections on Currency Boards

The dramatic events in Asia and Russia, and the contagion they have spread, have generated a torrent of commentary about exchange rates, hot money, and exchange controls. As someone who was deeply involved in Indonesia (Monetary Mischief, 1998) and who predicted that the ruble would collapse by midyear (Hanke, 1998b), I offer my views as to why most of the commentary has been either half-baked or simply wrong. Indeed, in most instances the international chattering classes have misdiagnosed the patient and, in consequence, prescribed the wrong medicine. A correct diagnosis requires an understanding of alternative exchange-rate regimes.

Privatization at the State and Local Level

Increasingly, state and local officials are seeking ways to cut costs without reducing the level of government-provided services. As a result, many jurisdictions have increased their use of cost-saving privatization techniques, and countless more are investigating the potential outcomes from greater use of the private sector. This paper examines privatization, defined as the methods and strategies designed to transfer the production or provision of public services from government to the private sector, at the state and local level.

A framework for the ex ante analysis of monetary reforms

Proposals for monetary reform based on inflation targeting, in Iraq and elsewhere, face a variety of practical and theoretical difficulties. In evaluating attempted reforms based on inflation targeting, we suggest some propositions broadly consistent with the new institutionalist critique. In particular, we stress the importance of recognizing path‐dependent features of the economic system. An awareness of the reduced generality of theoretical results in light of institutional limitations, combined with an impossibility criterion for economic policy technologies, holds promise for designing a set of readily attainable reforms. We argue that these criteria, far from being esoteric, actually interact in a way that underpins foundational results in monetary theory due to James E. Meade and Robert A. Mundell.

Two Systems of Public Finance: Entrepreneurial and Parasitical

Expositions of the theory of public finance mostly assume that taxation must be the primary instrument for generating revenue. This assumption is neither historically accurate nor theoretically necessary. Rather, it universalizes an institutional arrangement that is particular to the nation-state, where taxation is the prime instrument of public finance. In contrast to this system of parasitical public finance, we explore a system of entrepreneurial public finance within a setting of city-states where attraction and not compulsion dominates public finance. Cities are corporate bodies which can be organized under diverse institutional arrangements. We use the United Arab Emirates to illustrate our analysis of divergent systems of public finance.

Economic Freedom, Confidence and Growth

Prior to the nineteenth century, life in most parts of the world was brutish, dangerous and short. It still is in ‘poor’ countries but is much less so in the ‘rich’ ones. Indeed, life expectancies vary greatly between the developed and the less developed parts of the world. To fight the scourge of poverty and associated low life expectancies, economic growth is essential. This explains why economists have always been acutely interested in the process of economic development.