Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

AI Summary. A US-backed intervention to support the yen was funded largely by selling euros rather than dollars, limiting the volume of dollar sales required. The author argues this signals that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks deploy their dollar reserves in unlimited quantities.

Barry Eichengreen Financial Times
Date Posted:

Eichengreen argues that Treasury’s reluctance to see the BOJ use their dollar reserves for exchange intervention suggests that “the dollar is not the attractive reserve currency it once was,” and thus “reserve diversification is apt to gather steam.”

Is Washington reluctant to let central banks sell dollar reserves?

Core argument: The US Exchange Stabilization Fund purchased yen primarily with euros rather than dollars in the intervention, limiting the volume of dollar sales required from Japanese authorities.

Last week’s intervention [in which the Exchange Stabilization Fund purchased yen, primarily with Euros] contains troubling information about the dollar. Central banks are accustomed to holding foreign reserves in dollars because markets in US Treasury securities are liquid. Central banks hold US Treasuries because they can be freely bought and sold and used in interventions. But not now, at least not in unlimited quantities. Instead, we see the US Treasury stepping in with euro sales as part of its contribution to the intervention, thus limiting the volume of dollar sales needed by the Japanese authorities. The bottom line is that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks use their dollar reserves.

Takeaways by Macro Roundup® AI

  1. The US Exchange Stabilization Fund purchased yen primarily with euros rather than dollars in the intervention, limiting the volume of dollar sales required from Japanese authorities.
  2. Central banks hold reserves in US Treasuries on the premise that those securities can be freely bought, sold, and deployed in interventions, a premise the author argues no longer holds in unlimited quantities.
  3. The author concludes that Washington, fearing the consequences for US financial markets, is reluctant to see foreign central banks draw on their dollar reserves.

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  • Q&A on Yen Intervention — Currency intervention can't stem yen depreciation in the medium term because the decline is driven by Japanese government bond yields capped by the Bank of Japan to avert a debt crisis, and Japan can't afford higher yields. The author argues Japan could instead sell government financial assets to pay down gross debt and strengthen the yen.
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