Answering five questions.
1. If Robert Zoellick himself warned, days ago, that the dollar is set to be eclipsed, so why Gulf countries, such as Qatar or Saudi Arabia or UAE, insist on using American dollars in their oil trading, denying what the prominent Robert Fisk wrote in the independent, yesterday, about replacing the dollar with a basket of currencies, in trading oil?
2. In your opinion what is the perfect shape, for a new international economic order, that may include china and India, and others?
3. What it takes to rebalance the global economy?
4. How effect can the IMF be as rebalancing referee?
5. Will there be a change in global dealings with some currencies?
Khalil Harb
Money is a measure of value that facilitates exchange. Minting coins and, later, printing paper money has always been a prerogative closely supervised by the state (Scotland seems to be the only exception, where private banks issue notes). Bearing the monarch’s effigy, or the republic’s emblems, money symbolises the power of state. A power that stops at the border, beyond which another power and another currency take over. A legal tender exists within the frontiers of a nation. But goods, services, commodities, merchants, entrepreneurs and labour cross these frontiers continually, and at each crossing value has to be reassessed. Exchange rates vary constantly according to supply, demand and speculation, as well as for political and diplomatic reasons. Not knowing to-morrow’s value is a great inconvenience.
The US dollar’s supremacy dates back to the end of the Second World War In 1945, America was the only major industrial nation not to have suffered war damages. A year earlier, the gold standard established at Bretton Woods had been a face saving operation for Great Britain and France. It was of little consequence as, for the following fifteen or so years, the US was the only nation able to produce industrial goods for the world market. And the US dollar became the world’s currency as a consequence of this monopoly.
By the mid-1960s, Japan and Europe had rebuilt their capacities, had settled their colonial pasts (neo-colonialism) and were back in the competition for all the new markets. But their currencies were still weak and dollar dependent. The US trade balance remained largely positive, and America was still the world’s creditor. However, when crude oil prices were multiplied in the 1970s, the balance was upset and America became the world’s debtor. According to Michael Hudson (http://www.counterpunch.org/shaefer04232003.html) this was when the US government decided to pay its commercial deficits with Treasury bonds. A practise it has maintained ever since.
Saudi Arabia, Japan, Germany and more recently China, have accepted large quantities of US Treasury paper to balance the growing US trade deficit. Hudson says that Saudi Arabia did it under pressure. And this could be true for all of America’s creditors. Whatever may be, once a nation accepts another nation’s money (T-bonds are a promise to pay), it must continue doing so. If at some point it demands another form of payment, the money form will be devalued to its own disadvantage, as it is in possession of a lot of paper labelled in that other nation’s currency. If Japan stops buying US Treasury bonds and China stops accumulating US dollar reserves, the dollar will plummet and both creditors will lose out on the Dollars they are holding.
A global market needs a global currency. The US dollar has filled this function for over sixty years. During the first half of this period, America had a trade surplus and was the world’s creditor. During the second half, America had a trade deficit and was the world’s debtor. Concomitant to the trade deficit, the US was running a budget deficit and was selling it abroad. And the two deficits conveniently balanced out. On both the interior and the exterior markets, the US was thriving on ever increasing quantities of credit. The problem facing America to-day is that it is importing les and thereby reducing its trade deficit, while its budget deficit has been hugely multiplied. The flow of credit has stalled, the dollar is at the cliff’s edge and the world is holding its breath, waiting to see the result of quantitative easing. That is, the central bank buys old Treasury bonds from private banks, who in turn buy the new bonds being issued. This is in fact “printing” money to pay for government deficits, and is usually considered the symptom of a failed state.
The US dollar has far outreached its function as a global currency. This can be blamed on the Cold War and the superpower politics of imperialism. However, empires cannot be reformed, they can only decline or fall, which seems to be the future of America’s financial tool, the mighty dollar. Can it be saved from collapse by bolstering it up with a mixed bag of other currencies? Could the IMF or OPEC offer an alternative currency? Can the euro…? None of this seems likely, as the quantities of money concerned are too vast. The dollar stands alone, and alone it will fall or decline. And a new world currency will replace it. The dollar imposed its primacy because of America’s trade surplus. And, except that there will be several players, this will probably be the criterion again. So that following the adage, he who pays the piper calls the tune.
2. In your opinion what is the perfect shape, for a new international economic order, that may include china and India, and others?
3. What it takes to rebalance the global economy?
4. How effect can the IMF be as rebalancing referee?
5. Will there be a change in global dealings with some currencies?
Khalil Harb
Money is a measure of value that facilitates exchange. Minting coins and, later, printing paper money has always been a prerogative closely supervised by the state (Scotland seems to be the only exception, where private banks issue notes). Bearing the monarch’s effigy, or the republic’s emblems, money symbolises the power of state. A power that stops at the border, beyond which another power and another currency take over. A legal tender exists within the frontiers of a nation. But goods, services, commodities, merchants, entrepreneurs and labour cross these frontiers continually, and at each crossing value has to be reassessed. Exchange rates vary constantly according to supply, demand and speculation, as well as for political and diplomatic reasons. Not knowing to-morrow’s value is a great inconvenience.
The US dollar’s supremacy dates back to the end of the Second World War In 1945, America was the only major industrial nation not to have suffered war damages. A year earlier, the gold standard established at Bretton Woods had been a face saving operation for Great Britain and France. It was of little consequence as, for the following fifteen or so years, the US was the only nation able to produce industrial goods for the world market. And the US dollar became the world’s currency as a consequence of this monopoly.
By the mid-1960s, Japan and Europe had rebuilt their capacities, had settled their colonial pasts (neo-colonialism) and were back in the competition for all the new markets. But their currencies were still weak and dollar dependent. The US trade balance remained largely positive, and America was still the world’s creditor. However, when crude oil prices were multiplied in the 1970s, the balance was upset and America became the world’s debtor. According to Michael Hudson (http://www.counterpunch.org/shaefer04232003.html) this was when the US government decided to pay its commercial deficits with Treasury bonds. A practise it has maintained ever since.
Saudi Arabia, Japan, Germany and more recently China, have accepted large quantities of US Treasury paper to balance the growing US trade deficit. Hudson says that Saudi Arabia did it under pressure. And this could be true for all of America’s creditors. Whatever may be, once a nation accepts another nation’s money (T-bonds are a promise to pay), it must continue doing so. If at some point it demands another form of payment, the money form will be devalued to its own disadvantage, as it is in possession of a lot of paper labelled in that other nation’s currency. If Japan stops buying US Treasury bonds and China stops accumulating US dollar reserves, the dollar will plummet and both creditors will lose out on the Dollars they are holding.
A global market needs a global currency. The US dollar has filled this function for over sixty years. During the first half of this period, America had a trade surplus and was the world’s creditor. During the second half, America had a trade deficit and was the world’s debtor. Concomitant to the trade deficit, the US was running a budget deficit and was selling it abroad. And the two deficits conveniently balanced out. On both the interior and the exterior markets, the US was thriving on ever increasing quantities of credit. The problem facing America to-day is that it is importing les and thereby reducing its trade deficit, while its budget deficit has been hugely multiplied. The flow of credit has stalled, the dollar is at the cliff’s edge and the world is holding its breath, waiting to see the result of quantitative easing. That is, the central bank buys old Treasury bonds from private banks, who in turn buy the new bonds being issued. This is in fact “printing” money to pay for government deficits, and is usually considered the symptom of a failed state.
The US dollar has far outreached its function as a global currency. This can be blamed on the Cold War and the superpower politics of imperialism. However, empires cannot be reformed, they can only decline or fall, which seems to be the future of America’s financial tool, the mighty dollar. Can it be saved from collapse by bolstering it up with a mixed bag of other currencies? Could the IMF or OPEC offer an alternative currency? Can the euro…? None of this seems likely, as the quantities of money concerned are too vast. The dollar stands alone, and alone it will fall or decline. And a new world currency will replace it. The dollar imposed its primacy because of America’s trade surplus. And, except that there will be several players, this will probably be the criterion again. So that following the adage, he who pays the piper calls the tune.
posted by le Lézard at 8:28 AM
0 Comments:
Post a Comment
<< Home