Matthew C Klein, Columnist

Government Financial System Could Make Private One Work Better

Governments with their own currencies can offer many useful financial products at lower costs than traditional banks, insurers and asset managers.

April 26, 2013 at 1:29 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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One of the most basic functions of a financial system is that it allows people to smooth their consumption spending over time. The oldest example of this is probably when Joseph advised the Pharaoh to store the surplus from Egypt's bumper crops in the expectation of future famine. Since then, private firms have developed a range of products to help households and businesses weather the vicissitudes of life. Unfortunately, some of these products don't perform as advertised, which can cause extreme hardship and amplify economic cycles.

Fortunately, governments with their own currencies can offer many useful financial products at lower costs than traditional banks, insurers and asset managers. This is because, unlike other borrowers, governments never have to worry about running out of money. For better and for worse, they can always print what they need. While we already take advantage of this to some extent, we could do it even more.