Chapter

The Slipping Anchor, 1971–2008

Ronald I. McKinnon

in The Unloved Dollar Standard

Published in print December 2012 | ISBN: 9780199937004
Published online January 2013 | e-ISBN: 9780199980703 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199937004.003.0004
The Slipping Anchor, 1971–2008

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Anticipated dollar depreciations in the 1970s, and again from 2002 to 2008, set off hot money flows into countries on the dollar standard’s relevant periphery: Western Europe and Japan in the 1970s, and emerging markets in the noughties. Anxious to prevent its national currency from appreciating precipitately, each national central bank intervened to buy dollars with base money—and lost monetary control. The resulting worldwide inflations arose from a surge in the world’s collective money supply that only affected the United States with a lag. In retrospect, the worldwide inflations of the 1970s are remembered by most people as simply “oil shocks” that were not primarily due to a collective loss of monetary control from dollar depreciations. But the true monetary origin of these earlier oil spikes was revealed by the 2007–8 spike. From 2002 the price of oil rose threefold even though there was no obvious “shock” to oil supplies from the Middle East.

Keywords: oil shocks; monetary control; world inflation; asset bubbles

Chapter.  3116 words.  Illustrated.

Subjects: Financial Markets

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