Blog - Views on the Economy and the World

Views on the Economy and the World

A blog by Jeffrey Frankel

For more information on this publication: Belfer Communications Office
For Academic Citation:Views on the Economy and the World,” Views on the Economy and the World,

333 posts

The US dollar is up 12% against the euro over the last year.  Having moved from 1.21 $/€ in May 2021 to 1.07 $/€ today, the exchange rate seems to be approaching one-to-one parity for the first time.  Europeans are not happy about it. If you think that prices for oil and other commodities are high now in terms of dollars, you should see what they look like in terms of euros.  Get ready for “reverse currency wars.”

Russia’s invasion of Ukraine has amplified the importance of national security objectives when Western nations formulate energy policy.  At the same time, they should not take their eye off the ball of reducing environmental damage and, in particular, slowing down greenhouse gas emissions.  Both goals, geopolitical and environmental, are urgent.  The national security and environmental objective should be evaluated together, rather than via separate “stove pipes.”

The surprising strength of economic sanctions deployed multilaterally against Russia this month has been exceeded only by the surprising strength of the heroic Ukrainian resistance to the invasion of their territory.  True, it is hard to imagine sanctions bringing the Russian economy to its knees faster than Russian troops are able to complete the hundred-mile advance to Kyiv from the border.  But sanctions have gone macroeconomic.  Ultimately, the Russian economy will suffer severely and lastingly.

The US Supreme Court on January 13 blocked President Joe Biden’s attempt to mandate that businesses must require their employees to be vaccinated against the coronavirus or else wear masks and be tested regularly.  This “emergency standard” was to have been applied by the federal Occupational Safety and Health Administration, carrying out its responsibility under long-standing legislation to protect workers facing serious danger in the workplace.

As Russian troops mass along the border with Ukraine, the White House has been calibrating its response. President Joe Biden has warned that in the event of an invasion, the US and allies would make Russian President Vladimir Putin pay a heavy price. Likely measures would particularly include economic sanctions such as a cut-off from the SWIFT payments system and turning off the new Nord Stream 2 pipeline.  Good. It is possible that such threats will deter Putin.

Are the US and other advanced countries experiencing stagflation?  Stagflation is the unfortunate combination of high inflation with low growth in output and employment that characterized the mid-1970s.  Are we back in that decade?

Prices of fossil fuels rose sharply in October. The European price for natural gas hit a record peak early in the month. The price of US crude oil is above $80 a barrel, the highest it has been in seven years. Prices for thermal coal in China have also reached record highs. Heading into the northern winter, consumers in many parts of the world are understandably worried.

El Salvador this month became the first country to adopt a cryptocurrency, Bitcoin, as legal tender.  One says “the first” as if there will be others.  But the idea is highly dubious.

I will admit, like many economists, that I fail to see what problem cryptocurrencies solve. They aren’t well designed to fulfill any of the classic functions of money — unit of account, store of value, or means of payment – in part because they are so extraordinarily volatile in price.  This volatility is not surprising, since they are backed neither by reserves nor by the reputation of a well-established institution, such as a government or even a private bank or other trusted corporation.

Italy hosts the G20 this year.  The 2021 Summit of the Heads of Government will take place in Rome in October. Officials of member countries, including the finance ministers and central bank governors, are preparing.

The G20 meeting will come at a time of great uncertainty as concerns the health and economic effects of the pandemic, midway through its 2nd year.  Although the mechanisms of international cooperation have been badly bruised by events of recent years, they are more important than ever, in light of the interconnectedness across nations that the pandemic so vividly demonstrates.

Of what, specifically, should international cooperation in such bodies as the G20 consist?  To begin with, by “cooperation,” I am not in this case referring to the coordinated setting of national monetary or fiscal policies.  For the most part, countries can, on their own, move those levers in the directions that are right for them.

Areas on which the G20 should focus include three: financial stability, trade, and vaccination.  This is in addition to other important areas, especially the existential issue of global climate change, which should and will receive a lot of attention.

Ever since the 1960s, we have heard the cliché, “If they can put a man on the Moon, why can’t they do X?” where X is usually some goal like eliminating hunger — technologically simpler than the scientific miracle of space flight, but harder to accomplish in practice because it involves human behavior.  In 2021, the salient question is, “If we can accomplish the scientific miracle of developing vaccines capable of ending the Covid-19 pandemic that has killed millions, why can’t we convince enough people to get vaccinated?”

In lower-income countries, jabs are often limited by the availability of the vaccines.  But this is not the case with countries as fortunate as the United States, where the problem is primarily vaccine hesitancy, or even outright vaccine hostility.