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US treasury secretary Timothy Geithner said Wednesday the eurozone has enough resources to save itself: "The leaders of Europe have decided they're going to do whatever it takes to make this work. And they can do it, I think they have the resources and the ability to do it."
Not a currency, SDRs instead represent a claim to currency held by IMF member countries for which they may be exchanged. As they can only be exchanged for euros, Japanese yen, pounds sterling, or US dollars,[imf 1] SDRs may actually represent a potential claim on IMF member countries' nongold foreign exchange reserve assets, which are usually held in those currencies. While they may appear to have a far more important part to play, or, perhaps, an important future role, being the unit of account for the IMF has long been the main function of the SDR.
IMF use of SDRs must take account of consensus views, especially those of the USA, Japan, Germany, (for the EMU), and the UK. While in theory fiat money systems could be used to rather easily resolve current financial problems in practice we act more like we were still on a gold standard. It is rather like having a supercomputer but insisting that it only be used in emulation mode -- emulating an Apple II. In addition there would need to be a reasonable consensus on the appropriate way to use fiat money systems in order for such use to be possible. The current use is for the benefit of economic incumbents at the expense of all others. That, and economic theory that defines out of possibility all reasonable solutions, is the crux of the problem.
"It is not necessary to have hope in order to persevere."
What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
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