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economic adviser
 Miller served as public director of the Chicago Board of Trade from 1983 to 1985, and as public director of the Chicago Mercantile
Exchange from 1990 to 2000. Leo Melamed, chairman emeritus and
senior policy adviser of the Chicago Mercantile Exchange, recalled Miller’s commitment to the truth.
“Professor Merton Miller was the definition of honesty. I am speaking about honesty in economic thought. No matter what the issue, no matter what the politics, no matter who the players, no matter how complex the subject matter, Merton Miller told it as it was--or at least as he saw it. Let the chips fall as they may, let the feathers be ruffled as they might, other considerations be damned: the truth will be stated. It never ceased to amaze me. It always left me with a sense of awe and admiration. And it always gained Merton incomparable and ubiquitous respect.”
asian economy expert
Miller’s interests--and influence--
were never limited to the halls of academia. Particularly in his later years, he frequently traveled to Asia and became
a trusted adviser to government officials there. Nai-fu Chen, professor of finance
at the University of California, Irvine,
recalled Miller’s efforts during the
Asian financial crisis:
I  asked Mert’s advice just before boarding the plane for Hong Kong
on October 24, 1997, the day after
the Hong Kong Monetary Authority incited a panicky interest rate of 280 percent to defend the Hong Kong
dollar, causing a free fall in the stock market. Mert’s simple message for Hong Kong: “Do not devalue the Hong Kong dollar!”
Hong Kong had US$86 billion in reserve to back about US$12 billion worth of notes and coins in a currency board arrangement. There was, however, no guarantee for the equivalent of US$200 billion in M3. If the residents of Hong Kong woke up in panic and turned their life savings into U.S. dollars to protect their value, the Hong Kong dollar would collapse fast.
In Hong Kong, the secretary of
finance asked me if there was a less costly way to defend the Hong Kong dollar. After much thought, we (with my colleague Alex Chan) suggested to the Monetary Authority that they issue currency put options as a costly signal of Hong Kong’s commitment to the linked exchange rate. The put option can be embedded as part of a structured note in the Exchange Fund Bills (the Hong Kong equivalent of T-bills) and acts as an intertemporal currency board. The Monetary Authority was not enthusiastic.
In early 1998, Mert met Chinese premier Zhu Rongji in Beijing to
discuss the worsening financial crisis. Mert, as always, was ready with stories. When the premier asked why it was not enough to proclaim no devaluation, Mert told him about the Mexican peso crisis and the president’s proclamation that he would defend the peso “like a dog.” Within two days, the peso devalued, and the people greeted their leader with barks. The premier acknowledged the story with a smile.
In Hong Kong, Mert told Tung Chee-Hwa, the country’s chief executive, that Hong Kong did not have to ruin its economy with high interest rates to save the Hong Kong dollar. Mert explained the separating equilibrium that could set Hong Kong apart from its poorly run neighbor countries. As many GSB alumni later remarked, Mert explained things in a way they could understand. Even the largest hotel ballroom in Hong Kong could not accommodate all the business leaders who came to hear Mert’s talk.
The put option proposal received worldwide coverage by the Economist, Risk, Time, Fortune, the Wall Street Journal, and CNN, but the Monetary Authority was still reluctant to adopt it, even as the crisis deepened. When
Russia defaulted in summer 1998, the Authority intervened massively in the stock market in a desperate attempt to save Hong Kong from collapsing. The situation grew increasingly fragile.
On September 14, faced with the massive exodus of capital in the morning, the authority announced that the right to convert the Hong Kong Exchange Fund Bills (about US$8 billion equivalent outstanding) into U.S. dollars (via the discount window) was guaranteed at the linked exchange rate for the next six months. The Exchange Fund Bills became structured notes with an imbedded six-month currency put option. The right was later extended for another 500 days until August 2000. As they say, the rest is history.
The empirical evidence supporting the put option idea was immediate
and compelling. All the capital that
left Hong Kong on the morning of
September 14 flowed back to Hong Kong within three days. For the week of September 14, Hong Kong enjoyed
a capital inflow rather than outflow. The Hong Kong markets did not even shake in the following weeks when the near collapse of Long-Term Capital Management roiled world financial markets. The Hong Kong dollar stood like a rock during the rest of the storm. It was the only freely traded hard currency that did not depreciate against the U.S. dollar throughout the global financial crisis.
Mert always had a gift for solving complicated problems with simple, creative ideas. Among Mert’s many achievements in his long career, this one had an immediate impact upon the livelihood of millions of people. Perhaps few even know they owe this to the great thinker of our time, our teacher and friend, Merton Miller.
friend and colleague
Colleague and former dean George Shultz recalled his friendship with Miller. “Merton Miller’s eminence in economics is well attested, most notably by his Nobel Prize.  I can only say amen, and thanks, Mert, for illuminating the professional landscape so brilliantly,” said Shultz, former secretary of state who served as professor of industrial relations at Chicago. “My more personal recollection goes back to Mert’s arrival at Chicago, a great catch, we all knew. What struck me, and everyone else, however, was the energy, the brashness, the enthusiasm of perpetual youth and the humor that came with this incredible human dynamo. His impact was strengthened even more by a rare trait, a genuine capacity for real and lasting friendship. I have been away from Chicago for some time now, but whenever I would see my old friend, we would pick up as though our last meeting was yesterday.
I was always warmed and stimulated in a special way that will forever be with me. Thanks, Mert.”
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Related Stories:
A Tribute to Merton Miller
Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, pays tribute to Merton Miller.
Merton Miller: A Giant of Modern Finance
Miller’s colleagues, friends, and former students recall the man and his lifetime of achievements.
A Lifetime of Achievement
An overview of Merton Miller’s professional achievements.
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