Regarding "holding an asset on the balance sheet for the redemption promise to be credible": As for gold, for instance, by holding some very large ratio of an asset for this reason alone beyond concrete current needs, one reduces the availability of gold by buying it all up, increasing the demand for gold versus the dollar, causing the problem one has tried to solve, I am thinking.
If you start with a low gold cover, it is too late to start buying it up to increase it in the face of worries. Instead, you need to tighten fiscal/monetary policy to draw in gold and/or shrink the amount of currency in circulation relative to the existing gold cover.
You have to keep in mind that the peg price is fixed (with a range around it). Although you might be able to snipe some extra purchases at the top end of your peg range, you can't raise your bid price beyond the top end of the range without breaking the peg.
(Once again, I missed the notification of this comment.)
“ Central banks could issue bonds — but they generally do not. One way of ending the silliness of governments pretending that they have to listen to “bond vigilantes” is to have the central bank issue bonds. This is seen as unacceptable as it would put a lot of fiscal conservatives out of work.”
Regarding "holding an asset on the balance sheet for the redemption promise to be credible": As for gold, for instance, by holding some very large ratio of an asset for this reason alone beyond concrete current needs, one reduces the availability of gold by buying it all up, increasing the demand for gold versus the dollar, causing the problem one has tried to solve, I am thinking.
If you start with a low gold cover, it is too late to start buying it up to increase it in the face of worries. Instead, you need to tighten fiscal/monetary policy to draw in gold and/or shrink the amount of currency in circulation relative to the existing gold cover.
You have to keep in mind that the peg price is fixed (with a range around it). Although you might be able to snipe some extra purchases at the top end of your peg range, you can't raise your bid price beyond the top end of the range without breaking the peg.
(Once again, I missed the notification of this comment.)
“ Central banks could issue bonds — but they generally do not. One way of ending the silliness of governments pretending that they have to listen to “bond vigilantes” is to have the central bank issue bonds. This is seen as unacceptable as it would put a lot of fiscal conservatives out of work.”
Brilliant comment.