Bill Mitchell — Trade and finance mysteries – Part 2

I was running late yesterday and the blog post was already rather long so I left some matters concerning central banks for today. The question we address briefly today is what is the role of central banks in all these trade transactions. Does an export surplus country face an ever increasing money supply as central banks provide the counterparty service to traders who sell in a foreign currency but want their own currency (such as a manufacturer who incurs costs in say Yen but sales revenue in $AUD – as per our example yesterday)? There appears to be confusion on that front as well. So while I am not typically going to write a detailed blog post on a Wednesday, in the interests of continuity, here is Part 2 of the series on trade and currencies.

Parts 1 & 2 are must-reads. Also see the comments of Neil Wilson and Alan Longbon.

Foreign exchange, trade, and their relationship are areas of MMT that are somewhat complicated, and it takes some study to get it straight.  These posts will rank with Bill's posts on fiscal deficits in significance with respect to understanding the basic MMT POV.

Bill Mitchell – billy blog
Trade and finance mysteries – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia