The common assumption that a trade deficit must cause currency depreciation is flawed. A collapse in a country's domestic demand can also correct the imbalance by reducing imports. This explains the weak correlation between real exchange rates and trade balances, as both relative prices and demand levels are key factors.
Because most global trade, including Chinese exports to the US, is priced in dollars, exchange rate fluctuations have a limited effect on US import prices. A dollar depreciation boosts US exports (as they become cheaper for foreigners) but doesn't significantly reduce imports, challenging traditional trade models.
Unlike exchange rate movements, tariffs are fully passed to consumers because they are an explicit tax on top of a dollar price that is already sticky. Exporters, like those in China, maintain stable dollar prices because their own imported inputs are also priced in dollars, leaving them little room for adjustment.
For countries like Argentina, reducing inflation from 30% to single digits is the hardest part of the battle. Success depends less on crude monetarism and more on establishing long-term public confidence in fiscal discipline and policy continuity, a major challenge given the country's political history and upcoming elections.
The key value of stablecoins in developing nations isn't as a currency replacement, but as a check on power. By giving citizens an accessible, stable alternative to the local currency, they create pressure on governments and central banks to maintain sound economic policies, thus acting as a disciplining device.
Contrary to common belief, China's persistent trade surplus reflects deep-seated domestic problems, not competitive dominance. It is a symptom of chronically weak consumer demand and misallocated capital into unproductive sectors like property and EVs, revealing an imbalanced and fragile internal economy.
The bulk of AI's impact on employment won't be a slow trickle. Historical data on automation shows that companies identify roles for replacement during good times but execute layoffs en masse during recessions to cut costs. This creates a 'latent pool' of vulnerable jobs, portending sharp, cyclical job losses and jobless recoveries.
A Central Bank Digital Currency (CBDC) is less a technological leap and more a strategic move to create a 'competitive fringe'. A digital euro would pressure commercial banks to lower fees and improve services, particularly for cross-border payments, while also acting as a public backstop against the risks of privately issued stablecoins.
As AI automates the technical and computational 'science' of economics, the value of human economists will shift to the 'social' side. Future contributions will rely on the art of identifying important questions, exercising judgment in model design, and providing novel, real-world insights that AI cannot replicate on its own.