On the 2004 Foote Lecturer:
Dr. Michael M. Hutchison is Interim Dean of Social Sciences and Professor of Economics at the University of California, Santa Cruz. He is also Research Associate at the Center for Pacific Basin Monetary and Economic Studies at the Federal Reserve Bank of San Francisco, and Senior Research Associate of the Economic Policy Research Unit (EPRU) at the University of Copenhagen. He co-directs the West Coast Japan Economic Seminar. He consults with private business and public agencies in the areas of finance, statistics and forecasting. Dr. Hutchison's research centers on topics related to international finance and open economy macroeconomics, including exchange rate regimes, international banking and financial systems, and Asian monetary and financial policies. His most recent work is on the costs of financial crises, effects of IMF programs and effectiveness of official foreign exchange market intervention. He has published in numerous academic journals, written or edited several books and monographs (including Financial Policy and Central Banking in Japan, MIT Press 2001; The Political Economy of Japanese Monetary Policy; MIT Press, 1997; Fiscal Aspects of European Monetary Integration, Cambridge University Press, 1998), and provided many policy-oriented articles on general economic issues.
In his Foote Lecture, Dr. Hutchison examines the relation between East Asian capital flows and world financial stability. He first focuses on key background developments that have led, in recent years, to massive trade surpluses and accumulation of international reserves–mainly U.S. dollars–by the governments of Japan, China, and other East Asian countries. The sustainability of this system, where the U.S. economy is running large trade deficits and “supplying” the world with assets and liquidity, is put into question. An alternative system for Asia would be the development of a regional currency system such as that proposed and started with the Chiang Mae Initiative. This lecture emphasizes the fragile political and economic foundation for the present system, and argues that a free-fall in the U.S. dollar exchange rate is a distinct possibility if private capital markets become convinced that an Asian currency area is gaining political support.