Most economists and financial analysts think that 'currency war' refers to
the competitive devaluations that nations sometimes engage in to help boost
their domestic economies, as they had done in the 1930's for example.
This time the currency war is a much more profound confrontation of differing
agendas with the historically unusual role of the US dollar, based on nothing
more than the will of the Federal Reserve and the 'full faith and credit' of
the US, as the reserve currency for global central banks and international
trade.
When a single nation begins to wield such an 'exorbitant privilege' to
underwrite the speculative excesses of a crony capitalist banking system, and
perhaps even worse, as an instrument in support of their international
policy, one ought not be surprised that the rest of the world will begin to
resist it. A currency must be policy neutral, without regard to either
party if it is to be a true medium of exchange. Can this still be said
of the US Dollar as it has been managed, especially since 1990?
As Alan Greenspan once correctly pointed out, but certainly did not heed when
he was at the Fed, if a fiat dollar is managed by monetary policy such that
it emulates gold, then it will be perceived as fair and above the particular
domestic issues or international policy biases of a single nation that de
facto wields the reserve currency status.
"And so it is an odd situation where all the central
bankers -- while none of them are advocating a return to the gold standard --
nonetheless try to replicate the various types of interest rate policies that
the gold standard would have created. And it is an interesting question
whether you call that regulation, or basically functioning of a central bank
in stabilizing the economy."
Greenspan: Role
of Central Bankers Is To Emulate the Gold Standard
It might help one understand
this if you were to imagine a world in which Russia, for example, in a quirk
of history had established the ruble as the benchmark currency for the world.
The ruble was recommended for use by all nations as the means of paying
for oil, and for settling international trade even when Russia is not
involved in the transaction. Each country was thereby compelled to hold
a substantial portion of its international reserves in rubles.
And how would one be likely to react if the Russian Central Bank started
using the ruble as an instrument of their international policy and extension
of their power? What if they began creating more rubles to underwrite
the domestic bubbles which were created in their own corrupted financial
system to bail out their banks and oligarchs? Would you be content if
your own government went quietly along with this abusive sort of monetary
system? Is this not indeed taxation without representation?
The intransigence of the Anglo-American financial establishment to recognize
the legitimate issues of the rest of the world with regards to the manner in
which they have conducted their control of the IMF, the World Bank, and the
international reserve currency has ignited a currency war that is now
becoming increasing visible, to just about everyone it seems except for those
sequestered in their ivory towers at the heart of the Empire. Or
perhaps they think it too dangerous to even acknowledge that it exists,
because then they might be compelled to render an opinion on it.
This is a 'big event' and it is all the more remarkable because the policy
makers in the US act as though it is not even happening, or is not happening
for any of the reasons for which it is. They prefer to view it as a
challenge to their authority, and react uncompromisingly and with force.
This is not a constructive situation.
I think that historians will mark the start of the currency war in the Asian
currency crises and the fall of the Russian ruble in the 1990's.
But from the following essay it seems that China has marked it from
March 2015.
But whatever the date of its commencement, this dispute over the
international monetary regime is the basis for the currency war.
It is the old story of the very powerful resisting change that benefits the
few of them inordinately. And as in so many wars of the past, those few who
benefit from it do not include the bottom 90% of the people.
Has the US Lost its Role as the Underwriter of the
Economic System?
By Willem Middlekoop
The recent news that Britain aspires to become one of the founding members of
the new Asian Infrastructure Investment Bank (AIIB), has shocked many. Larry
Summers, who served as a Secretary of the US Treasury between 1999 and 2001,
immediately understood the significance of these developments, and wrote in
an op-ed for the Washington Post: 'March 2015 may be remembered as the
moment the United States lost its role as the underwriter of the global
economic system. I can think of no event since Bretton Woods comparable to
the combination of China's effort to establish a major new institution and
the failure of the United States to persuade dozens of its traditional
allies, starting with Britain, to stay out.‘
This British announcement was highly criticized by the US. The Financial
Times quoted an unnamed US official: 'We are wary about a trend toward
constant accommodation of China, which is not the best way to engage a rising
power. This decision was taken after no consultation with the US.‘
Summers was also highly critical of the US‘ strategy toward the newly founded
AIIB: 'The U.S. misjudged the situation tremendously, put pressure on allies
and developing countries to under no circumstances be part of AIIB. Largely
because of resistance from the right, the United States stands alone in the
world in failing to approve International Monetary Fund governance reforms
that Washington itself pushed for in 2009. By supplementing IMF resources,
this change would have bolstered confidence in the global economy. More
important, it would come closer to giving countries such as China and India a
share of IMF votes commensurate with their increased economic heft.‘
With Britain and many more major European countries signing up as founding
members of the AIIB, the US economic hegemony has been dealt an enormous
blow. For the first time since the end of the Second World War, the US is not
in the driving seat during the foundation of a highly significant global
institution. Of course, this will not change the world economic system
overnight, but when we look back in five, ten or even fifteen years‘ time,
March 2015 may be remembered as a turning point in economic history...
Another criticism is that the US move to more neoliberalism and global
capitalism since the 1980‘s, has led to a change in the functions of the IMF.
Criticasters claim allies of the US receive 'bigger loans with fewer
conditions‘. Foreign governments who are non-allies have to sacrifice their
political autonomy in exchange for IMF-funds and often have to sell assets
crucial for their economy to foreign (often US) companies.
The former Tanzanian President Julius Nyerere, who was angered that
debt-ridden African states were forced to hand over their sovereignty to the
IMF (and World Bank), once asked: 'Who elected the IMF to be the
ministry of finance for every country in the world?‘ And now the Chinese have
openly asked for a 'new world wide central bank‘.
Joseph Stiglitz, a former chief economist at the World Bank, has also agreed
that the IMF 'was reflecting the interests and ideology of the Western
financial community‘. The 'helpful hand‘ by the IMF and World Bank towards
military dictatorships friendly to the West‘ has been criticized as well.
Summers were also highly critical of the US‘ strategy toward the newly
founded AIIB: 'The U.S. misjudged the situation tremendously, put
pressure on allies and developing countries to under no circumstances be part
of AIIB. Largely because of resistance from the right, the United States
stands alone in the world in failing to approve International Monetary Fund
governance reforms that Washington itself pushed for in 2009.
By supplementing IMF resources, this change would have bolstered confidence
in the global economy. More important, it would come closer to giving
countries such as China and India a share of IMF votes commensurate with
their increased economic heft.‘ With Britain and many more major European
countries signing up as founding members of the AIIB, the US economic
hegemony has been dealt an enormous blow. For the first time since the end of
the Second World War, the US is not in the driving seat during the foundation
of a highly significant global institution. Of course, this will not change
the world economic system overnight, but when we look back in five, ten or
even fifteen years‘ time, March 2015 may be remembered as a turning point in
economic history.
It might be remembered as the start of an openly Chinese confrontation with
the US over the world‘s economic leadership. As Summers points out, all of
this has taken place because the Chinese leadership has had to wait a full
five years for a change in the IMF-voting structure...
International Monetary Review,
Chinese quarterly, International Monetary Institute, Beijing July 2015, page
32
