would you please clarify these statements.
"Neutral international money implies that capital account transactions are effectively barter taking place arbitraging real values over time and space, as opposed to current account transactions, which are effectively barter arbitraging real values over space alone."
and
YMMV Diversity is the key to economic and political evolution.
IOW, I'm not a trade economist, even if I have once in a while played one on the Internets.
Neutral international money implies that capital account transactions are effectively barter taking place arbitraging real values over time and space, as opposed to current account transactions, which are effectively barter arbitraging real values over space alone.
If the supply of money does not affect "real" values over the long term ... that is "neutral" money ... then lending is just transferring money from now to the future to buy something then, and borrowing is transferring money from the future to the present to buy something now.
And in the standard model, that is something in particular ... that is, the price of, say, iron ore rises ten years from now, and therefore you change your borrowing/lending activity in the here and now, in order to buy more or less things that are made from iron ore.
International Money being neutral extends this from a single economy to the international balance of payments, so that a capital outflow represents people in the country responding to the change in relative prices between now and, say, ten years from now by deciding to buy something ten years from now.
Its a very pretty theory with very elegant mathematics.
Oh, and BTW, the Bank of China is also making moves toward devoting some of their purchases of foreign exchange reserves to buying financial assets that yield more than the conventional liquid balance in a major money center bank in the foreign exchange country of origin. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
