Comments on the Program

As you can see from the syllabus, the program includes 6 three-hour sessions packed with lots of material. In theory, each session is meant to deal with its corresponding topic. However, some topics may take slightly more or slightly less time, and we will make the necessary adjustments as we go. One key aim of the program is to provide you with the tools to understand the key issues in today’s (and tomorrow’s) financial diplomacy. Finance plays a prominent role in today’s economic landscape –– we will devote as much as three sessions to understanding credit markets (and the political economy of credit markets). But finance goes hand in hand with trade and innovation. That’s why we will have to read an important paper by Michael P. Dooley, David Folkerts-Landau & Peter Garber: “An Essay on the Revived Bretton Woods System”, NBER Working Paper 9971 (2003). It is rather technical; but we will devote at least half-an-hour to understand the “spirit” under which it was written.

The Dooley paper ––an innovative interpretation of China’s economic development model–– helps us to put the 2007-2009 global financial crisis in context. We need to pay close attention to that event, seen by some authors as a crucial moment in world history: the moment in which the US lost its undisputed superiority in matters of finance and economic. In the aftermath of the crisis, central banks played a leading role in terms of financial diplomacy. We will devote some time to a seemingly technical operation by central banks –– the so-called central bank currency swaps of October 2008, orchestrated by the European Central Bank and the US Federal Reserve Bank. The success of that operation can be understood as a striking exercise in soft power.

The notion of soft power is usually seen as abstract and unrelated to real-world events. But no! Currency swaps will help us to understand how tangible and concrete it can be. Speaking of central banks, part of Session 3 will be devoted to monetary policy. This a rather complicated and technical issue. Even though I’ll present it in a non-technical way, it will not feature in any of the assignments. However, some students might find it particularly interesting –– it happened in previous years. It the need should arise, I would be glad to organize one or more special sessions on monetary policy. But again: it would not be compulsory, and attendance to those special sessions would not feature at all in terms of the final grade.

A word on Session 4. The Political Economy of Credit Markets will take us in a wholly unexpected direction. Based on some econometric evidence ––and on some wonderful passages by Montesquieu and Adam Smith–– we will explore the hidden politics of credit markets. Nineteenth-century classical economists assumed that property rights were fixed, stable and permanent; political representation, the rule of law and stable property were all taken for granted. But this is definitely not the case in most of the emerging world! The material presented here should help us to understand the relative scarcity of capital and credit in the emerging world, and how this ultimately translates into poverty and inequality.