The New York Times' Paul Krugman used his Friday column to debunk the myth at the heart of the current euro debate, i.e. that it's impossible to exist as an independent economic entity with its own currency while being immediately adjacent to an economic superpower.
Besides the obvious example, Canada -- which remains economically viable despite maintaining its own currency -- Krugman pointed out that both Australia and New Zealand did very well during the Asian financial crisis of 1997-1998 because they had independent currencies.
He also argued that the claim, most recently voiced by John Kerry and President Barack Obama, that the dollar "is an important source of American power," is the result of a "wild" exaggeration. The Australian dollar plays no special role in world politics, and yet the country "has consistently attracted bigger of inflows of capital relative to the size of its economy."
Krugman continued, writing:
What’s important for both capital and trade, it turns out, is whether your economy offers good investment opportunities under an umbrella of legal and political stability. Whether you control an international currency is a trivial concern by comparison.
So we can learn a lot by following the dollars — all the dollars, not just those bearing portraits of dead presidents. And what we learn in particular is that monetary economics should be approached pragmatically, not in terms of mystical notions of value.
Take it from those who share our language, but not our currency: There are many ways to make money work.
Read the rest at the New York Times...
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