Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

I have never stood in their shoes, so I’m not sure I fully understand it. You are right that the world is a little short of the risk-free asset now, and so a greater supply would be terrific in some sense. But they have a general view, which I think our people share, that to meet the kind of lumpy, unpredictable, potentially large needs for lender-of- last-resort purposes you may face in our currency, you have to manage reserves in a way that you can meet those needs without selling Treasuries or agencies. It would not be so terrific for the world. I have never stood on the other side, but that’s my basic sense. Another way to think about this is that the privilege of being the reserve currency of the world comes with some burdens. Not that we have an obligation in this sense, but we have an interest in helping these guys mitigate the problems they face in dealing with currency mismatches in their financial systems. We have an interest in helping them meet that in some sense. It’s not our obligation. We have the same basic interest that led us to be responsive to the European need in some cases. These guys are different in that they actually have managed the countries’ balance sheets better because they at least have a huge amount of their assets in dollars. That should make us in some ways as comfortable as—maybe more comfortable than—doing it with the Europeans because they ran a banking system that was allowed to get very, very big relative to GDP with huge currency mismatches and with no plans to meet the liquidity needs of their banks in dollars in the event that we face a storm like this.

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