Hedges can break, and must always be limited. Trade counterparties don't need to hedge for years. They need to hedge over a production cycle. 1/

Counterparties in FX hedges for hub-and-spoke trade are hub-country institutions, who might be forced to provide hub-currency on disadvantageous terms. *In extremis* they can be bailed out by hub country central banks. 2/

(To receivers of hub currency, there is the risk of its decline relative to local, the goal is to insure against local currency strength. The depth of those markets are largely up to local currency markets. But note that the current practice of reserve currency accumulation doesn't hedge that.) /fin

I think we want an institution in the broad sense of a set of wisely understood and adhered practices, rather than a formal institution like a global central bank / ICU. 1/

We still need to engender a degree of international buy-in and consensus. But the norms agreed can be enforced in a decentralized and competitive manner, while a formal institution is fragile to leadership takeover, would be too risky in so conflictual a world, I fear. 2/

I guess I see IMF evolving into a creditors' whip as a pretty severe cautionary tale. But so I think we need institutions that, if widely employed in an incentive-compatible way, will yield results similar to Keynes' technocratic enforcer of balance. /fin

I guess I disagree with the premise. There needs to be some stock of internationally tradable currency/bonds for liquidity purposes, but it doesn't have to be large, and there needn't be a hegemonic debtor providing it. 1/

As you suggest, swaps by prominent currency provider central banks renders international media of exchange fully elastic. Like credit card debt that won't revolve, that you pay end of month, the money appears to smooth transactions and disappears when transactions net. 2/

The Triffin dilemma is obsolete. A perpetually growing stock of external reserves is neither necessary nor desirable. /fin

I think the project of our moment is to provide tools by which we get to bancor world without bancor/icu. We don't have enough mutual trust to let supernational technocrats enforce balance. 1/

But deficit countries typically want balance. If they have nondestructive unilateral tools to help enforce it, we can end up with a world quite close to bancor world (with some limited imbalance, in the exceptional cases where it makes sense). 2/

I disagree that imbalance is a feature not a bug. Some limited time, limited scope imbalance, for particular purposes, sure. But perpetual, unmanaged imbalance is a horseman of the apocalypse, in my view. We are where we are as a world because we abandonned Bretton Woods' near Bancor-world. /fin

You're trying to get to balance. Import Certificates trade cheaply once a country is in balance or surplus, they offer little subsidy to exports at that point. The policy choice becomes level of balanced integration, rather than a competition for trade surplus.

(balanced global trade integration)

(i guess this isn't quite right, because Import Certificates force balance immediately. you're trying to rearrange the economy so that trade would be in balance without tariff or subsidy. once that happens, import certificates become cheap.)

Great minds! It was an excellent idea at the time, remains an excellent idea now. 1/

(Yes, my preference is a "foreign payouts tax", that's the approach I advocate, but Import Certificates also compose — they're consistent with a balance norm, every country can implement them without beggaring anyone or restraining balanced trade — and that's the main thing we should be after.) /fin

This is similar to Warren Buffett's Import Certificate proposal, under which exporters would receive tradable certificates, $1 for each dollar of export revenue, importers would need to remit $1 of import certificate for each $1 of value imported, the certificates trade. fortune.com/article/warr...

cc @steveroth.bsky.social