Wednesday, February 20, 2008

Inflation and CBs 2: Panama has no Central Bank

One of the hallmarks of HK's free market economy is that its monetary authority (or central bank or federal reserve) does not print the national currency. The HK dollar is printed not by its monetary authority, but by private banks -- HSBC, Citibank i think, and one more bank. The monetary authority just function as it is -- to set monetary policy (levels of interest rate, money supply, exchange rate and international reserves, etc.).

But there's one economy that looks more free marketer than HK in monetary policy -- Panama. It has no central bank or monetary authority. No national currency, they're using the US$. And in some big infrastructure projects, like expanding the capacity of Panama Canal, the government will raise not a single tax rate, but rather use revenues from the canal to do the job.

To see more about this, see Andrew Work's article, "Panama -- the HK of Latin America?"

In earlier short articles, I have argued that central banks are shrinkable if not abolishable, if their main concern is "inflation targetting". High inflation rate, and high prices of commodities and services in an economy, is mainly a result of trade protectionism and less mobility of commodities around the world. When the price of some goods are high in country A when such goods are wide available elsewhere, that country's protectionism is the culprit. Conversely, when the price of other goods in that same country A are dirt cheap when these goods are expensive elsewhere, again that country's or other countries' protectionism is the culprit.

The level of money supply in the economy is not much a factor, though loose money supply can push prices up (ie, too much money chasing too few goods and services). But it's those central-planning thinking central bank bureaucrats that manipulate money supply and interest rate levels. And their manipulation can distort the price signal in an economy if market players are better left on their own to respond to changes in consumer demand and producer supply.

When central bank officials or bureaucrats say thay want to "cool off" an "over-heating" economy, they mean they want to control "over-spending" and high borrowings by the people because this can lead to high inflation. So what they usually do, is they raise interest rates -- to encourage savings and discourage high spending and borrowings. Then they say that they have controlled high inflation.

I am not in favor of this kind of intervention. When people have lots of money to spend, let them do so; someone's consumption is somebody else's production and services.

* See also: Inflation and CBs 1: Central Banks Can Be Anti-Globalists, June 29, 2006


Anonymous said...

No country in the whole world ever needs a central bank. The central bank needs the whole world.

No need for a central bank. No sense in borrowing paper money with the backing of thin air.

Phoney money...what a scam. Monetary = You, your friends, your family, your nation all in debt!

Panama I hope stays out of the clutches of the central bank. We need more places like that in the world. It means that they have money, lots of money...when was that ever bad? So things start costing more, and they can more than afford it. They can actually get to the point to where they would never ever need a loan...EVER!

America would of been like that, but the central bank took over in 1913. Central bank took over Great Britain and made the European Union which now illigalized vitamins(ALL) So they can't have healthy imune systems or cheap ways to fight basic! Oh yes its true. Euro insteed of pounds. WTF! Real money backed by silver and gold standards, now replaced by fake money backed by nothing.

Anyways to what I said. No Country in the whole world needs a central bank. The central bank needs the whole world.

And they are only a few years of total world economic domination.

I dont think panama will be able to stop the central bank because people are to scared that know the truth and people who dont know are convinced to not believe what your saying is the truth.

Move to places like panama or anywhere they do not use the private central bank, also known as "reserve" banks. Its just a false representation. The "FED" is not your goverment, only your goverment is your goverment and only by its known name for that country.

"trust nothing, investigate everything"

Anonymous said...

While Panama may not have a central bank of its own, the value of its currency (the US$, as you mentioned) is still subject to the actions of the A central bank -- the US Federal Reserve System. The actions of the Fed don't only effect the US dollars circulating within US borders. Since currency can flow freely in and out of Panama, it is subject to the same laws of supply and demand as the the cash in the hands of American citizens.