LETTERS TO THE EDITOR: Downgrading would make no sense

Financial Times
30-Jun-2000  12:00:00 am  139 words
By WARREN MOSLER

 From Mr Warren B. Mosler.

 Sir, The mere thought of downgrading yen-denominated sovereign debt defies all logic ("Japan in rating plea to Moody's", June 28).

 With a floating exchange rate, a government's "ability to pay" is beyond question. All payment by government is a simple matter of crediting a member bank's account at the Bank of Japan. And, operationally, the payment process is independent of revenue collection, which is nothing more than the debiting of a BOJ member bank's account. Therefore, the ability to service any size debt is but a matter of crediting an account, and requires nothing more than the issuing of instructions to the appropriate BOJ official. Any constraints on the ability to pay must be both self-imposed and reversible on decree.

 A downgrading by Moody's, by deduction, would either be a judgment of Japan's "willingness" to pay or an error. I urgently suggest the latter.

Warren B. Mosler, Director of Economic Analysis, III Finance, 250 S Australian Ave, Suite 600, West Palm Beach, Florida 33401, US

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