Nobel laureate economist Paul Krugman said recently that China’s economy was too small to lead the world to a full recovery, while lauding Taiwan’s health care system, local media reported yesterday.
Krugman told the Chinese-language Economic Daily News that the IMF created the special drawing right (SDR) in 1968 to be used as the world’s reserve currency, but nobody really used the SDR except as a unit of account
He made the comments following the Chinese central bank’s recent proposal to create a super-sovereign reserve currency to reform the international monetary system.
Krugman, professor of Economics at Princeton University, and New York Times columnist, was the winner of last year’s Nobel prize for economics.
The problem with the SDR remains the same, because people want an actual currency they can use and trade in the market, and that is why a basket of currencies, including the US dollar, the euro and the yen, are more useful than the SDR, he said.
Krugman said that China’s government would continue to use a basket of currencies, but would only adjust the weight of each currency in the basket with “maybe an overweight on the euro.”
Krugman said he was not a big believer in a strong US dollar, which was only a short-term phenomenon as he expected the greenback to fall in the future on the US trade deficit and low interest rates.
As an international currency, he said the dollar’s major competitor would be the euro, but Europe’s economic problems were far worse than he thought.
Unlike the US as one single country, Germany, France, Spain and Greece are all separated markets in Europe, with different interest rates in each country. Policy-wise, Europe is not a single entity, hence it is still difficult for the euro to become the major competitor to the greenback, the professor said.
Moreover, Krugman praised the nation’s health insurance system, which he said has been successfully implemented, and said he planned to recommend Taiwan’s model to the US public.
On economic recession, Krugman said the current global financial crisis was more serious than the Asian financial crisis in the late 1990s when only several Asian countries were seriously hit while US and European GDP continued to grow.
Krugman said the current situation in the US was similar to that of Japan in the 1990s. Hence, he did not rule out the possibility that the US economy could fall victim to a “lost decade” like Japan suffered.
But many economists, including US Federal Reserve Chairman Ben Bernanke, were learning from Japan’s mistakes to try to avoid such a scenario, he said.
Krugman is scheduled to visit Taiwan on May 14th and 15th, upon the invitation of the daily and Taiwan Financial Holding Co (台灣金控), to attend a seminar along with local pundits.