Deficit Owls | The Job Guarantee and Foreign Exchange Devaluation @deficitowls5296 | Uploaded April 2018 | Updated October 2024, 17 minutes ago.
Professor L. Randall Wray, discussing how a Job Guarantee can be implemented in a way that takes pressure off of a nation's foreign exchange rate. One potential problem of a JG is that it could have an adverse effect on the nation's exchange rate: if workers wages increase from what they previously were, then they are likely to import more goods from abroad. This either means that the nation must export more to match, or there must be foreign savers who are willing to accumulate the nation's currency (that's the other side of importing: you end up with foreign goods, they end up with your money). If neither of those happen, then the nation's exchange rate will fall until one of them does.
For developed nations, this probably isn't an issue, as there are foreign investors who hold the currencies of the major world economies in their portfolios. But for developing nations, it could be a problem. In this video, Wray mentions several possible tactic to address it.
One is to run the JG in a way that stimulates development of export industries, and the simplest way to do this is probably to use JG workers to cultivate and improve tourist sites, to encourage foreigners to visit your nation.
Another tactic is to pay the workers in a way that prevents them from spending their income on imports. This can be done by payment-in-kind, where instead of money, workers are directly given goods and services. Since this is a Job Guarantee, some of the jobs in the program could be directly to create these goods. (Presumably, this would not be the workers' entire paychecks, but only some portion of them.)
Yet another way not mentioned in the video is with trade policies: simply ban imports in certain quantities or products. The downside to this of course is that it limits consumer freedom.
An additional note on fixed exchange rate regimes: in a fixed exchange rate, the central bank uses foreign reserves to buy back the domestic currency in order to raise the exchange rate (eg., China uses dollars to buy back Yuan). So if full employment is leading to more imports, then rather than seeing the exchange rate fall, you'd see the central bank eventually run out of foreign reserves, then face a currency crisis as it is unable to maintain the fixed exchange rate. The above tactics apply in exactly the same way to this situation.
See the whole video here: youtube.com/watch?v=yFSKaCRpL-s
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Professor L. Randall Wray, discussing how a Job Guarantee can be implemented in a way that takes pressure off of a nation's foreign exchange rate. One potential problem of a JG is that it could have an adverse effect on the nation's exchange rate: if workers wages increase from what they previously were, then they are likely to import more goods from abroad. This either means that the nation must export more to match, or there must be foreign savers who are willing to accumulate the nation's currency (that's the other side of importing: you end up with foreign goods, they end up with your money). If neither of those happen, then the nation's exchange rate will fall until one of them does.
For developed nations, this probably isn't an issue, as there are foreign investors who hold the currencies of the major world economies in their portfolios. But for developing nations, it could be a problem. In this video, Wray mentions several possible tactic to address it.
One is to run the JG in a way that stimulates development of export industries, and the simplest way to do this is probably to use JG workers to cultivate and improve tourist sites, to encourage foreigners to visit your nation.
Another tactic is to pay the workers in a way that prevents them from spending their income on imports. This can be done by payment-in-kind, where instead of money, workers are directly given goods and services. Since this is a Job Guarantee, some of the jobs in the program could be directly to create these goods. (Presumably, this would not be the workers' entire paychecks, but only some portion of them.)
Yet another way not mentioned in the video is with trade policies: simply ban imports in certain quantities or products. The downside to this of course is that it limits consumer freedom.
An additional note on fixed exchange rate regimes: in a fixed exchange rate, the central bank uses foreign reserves to buy back the domestic currency in order to raise the exchange rate (eg., China uses dollars to buy back Yuan). So if full employment is leading to more imports, then rather than seeing the exchange rate fall, you'd see the central bank eventually run out of foreign reserves, then face a currency crisis as it is unable to maintain the fixed exchange rate. The above tactics apply in exactly the same way to this situation.
See the whole video here: youtube.com/watch?v=yFSKaCRpL-s
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
And follow our sister page, Modern Money Memes:
facebook.com/ModernMoneyMeme
twitter.com/ModernMoneyMeme
