The USA and the EU demand China to revalue Yuan, but the Chinese authorities deny this request, stating that this will lead to bankruptcy of Chinese enterprises and, accordingly, to the growth of unemployment and social instability, which Beijing afraid even more than the discontent of its trade partners. As a counter-thesis in the debate with the USA, China presses the charges of uncontrolled emission of the U.S. dollars, which, according to the PRC, provoked the imbalance of the world economy.
“Ghost of communism” that wandered all over Europe in the 19th century according to Marx, mutated and broadened the sphere of its influence. Now it threatens an entire world with a global currency war instead of the global revolution. Multipolar reality that everyone acknowledged is becoming an important element of the new international financial architecture.
Increasing economic competition led to creation of the true currency front lines, coming through five main directions at least:
• The USA — the European Union
• The USA — China
• The West — Libya
• The USA — Latin America
• BRIC — the USA and the European Union
Well-known French economist Jacques Sapir[1] believes that the project named American Age has failed and today we may see the outlines of the new 21st century project. The main paradigm of this project is economic and geopolitical multipolarity. This means the restoration of the national states trying to bring its own plans of actions into the international politics. The new situation also means giving up the technique of 1991–2007, when the world felt the American hegemony. The change of the economic strategy will be one of the new century essentials. China, India and Brazil have already exemplified this new trend — dynamics of economic development in these countries is conditioned by the development of domestic market, which, in its turn, depends upon ecological and social indicators. Yet, the true geopolitical multipolarity may only emerge, following the currency multipolarity, which will be the consequence of the dollar crisis — the currency, which was the strategic ground of American hegemony until recently.
In 1944–1971 Bretton Woods Agreements created the “new currency order”, which had to protect the world from crises that shook it between the two world wars. The International Monetary Fund was created — its main goal was to regulate the global currency system in cooperation with the state national banks. This system has cracked in 1971 for the first time, when the USA have unilaterally given up the principle of dollar gold backing estimated and the $35-to-an-ounce ratio, having, thus, devalued their national currency. Since then the U.S. Dollar has become a symbol of American superpower. Scripture “In god we trust”, which appeared on the dollar bills in the 60s, became universal in a world, where faith into an American might has become a foundation of the economic power hidden behind dollar. In 1973 currency cross-rates became defined due to the offer and demand principle. Banks started to exercise in currency interventions, thus, influencing the currency exchange rates. Accumulation of the currency reserves started to gradually lose its sense in the violent sea of the currency market, where the daily turnovers exceed $4 trillion, i.e. exceeding the currency stocks of the central euro-zone banks five-to-one. Never before in the history of the capitalistic economy there was such disproportion between its real and virtual parts. All of that destroyed the state economic sovereignties — today only 5% of the daily transactions fall into the commodity category, the remaining 95% is the movement of speculative capital.
The situation looks a bit different in the developing countries, where the currency exchange rates turned into an object of complicated manipulations. For example, China, India and Brazil firmly control the national currency exchange rates bound to the dollar rate. Yet, only two states in the world use the “printing press” for regulation of their national currencies. It is the USA and Great Britain. While the last time Brits applied to this method was in 2009, when the Labour government felt distressed, Americans use this technique almost on a daily basis. The last $700 billion emission allowed the U.S. Federal Reserve to keep the banking system afloat, because these billions were used to buy the state bonds off from the banks and the “cash” that banks got was used to credit the real sector of American economy.
Certain economists believe that true reason for the Iraqi occupation in 2003 was Saddam Hussein’s attempt to replace the dollar with the euro in the oil calculations. China, Libya, Venezuela and Iran started to voice up the similar intentions. Since 2002 till 2003 share of euro in the global currency reserves has increased from 10% to 20%. This might have brought the torrent of dollars back into the USA and those were to be paid for somehow. Demands of the non-residents of the USA to pay for American stocks might have caused the bankruptcy of America. In 2003 U.S. state debt made up “merely” $3.4 trillion and only 4% of it was baked with gold and currency reserves. Decline of dollar would have obviously meant the decline of Pentagon as well, which was carelessly spending $360 to $400 billion at the moment. War in Iraq had to bring the world back to dollar.
On the 11th and the 12th of November, 2010 G20 Leaders Summit took place in Seoul — these countries represent the 90% of the global economy. Goal of the summit was to consolidate the balance of the world financial system and lay the foundation of a strong, steady and even growth. Brazilian Minister of Finance Guido Mantega, anxious with the cross-rates of Brazilian real, U.S. dollar and Chinese Yuan, straightforwardly announced that the currency is waged. Notorious Dominique Strauss-Kahn echoed him: “I treat the threat of a currency war, even the one, waged secretly, very seriously”.
Danger of the financial crisis also threatens with an increasing trend of protectionist financial state policies. Currency intervention of the Japanese Central Bank in September of 2010, which was intended to weaken yen, signifies the Japanese will to break free from the behavior framework, foisted off by the USA. This testifies to the fact the U.S. influence over the global economy also weakens. As far back as in 1997 Americans had no troubles blocking the creation of the Asian Monetary Fund (as an alternative to the IMF). Now, though, American financial crisis makes the country seeking the ways to secure its own financial system instead.
Taking advantage of the fact that American market is the most attractive for the exporters, the USA try to impact the latter ones, discussing the projects of the special customs fees for the goods, coming from countries with an “artificially understated currency exchange rates”. It’s clear that the cusp of such laws points to Yuan first and foremost. Globalization has made the economies of the most developed countries mutually dependent to a considerable degree. Japan owns a $1 trillion reserve, Chinese currency reserves make up $2.5 trillion; South Korea, Taiwan, Singapore and Malaysia also dispose considerable dollar reserves. Other BRIC countries (Brazil, Russia and India) hold large dollar reserves as well.
Therefore, the currency war is the consequence of the inconsistent U.S. economic policy. Looking for a cheap labor force, American business moves its manufactures to China, thus, promoting its economic growth. As far back as in the 90s China bound the Yuan rate to dollar. It was done in order to keep the understated Yan rate. Otherwise, strong Yuan would have “gnawed” all the results of the Chinese economic miracle. Trade surplus of China was growing along with the deepening trade deficit of the USA. Hence the increasing currency reserves of the PRC, which it spent to buy off the American bonds. The USA and the EU demand China to revalue Yuan, but the Chinese authorities deny this request, stating that this will lead to bankruptcy of Chinese enterprises and, accordingly, to the growth of unemployment and social instability, which Beijing afraid even more than the discontent of its trade partners.
As a counter-thesis in the debate with the USA, China presses the charges of uncontrolled emission of the U.S. dollars, which, according to the PRC, provoked the imbalance of the world economy.
It is exactly the dollar crisis that led the IMF to a thought of replacing dollar as a global currency to the so-called SDR. IMF report named “Enhancing International Monetary Stability — A Role for the SDR” describes the opportunity for the increase of the SDR (Special Drawing Rights) role. This is a synthetic currency unit, a so-called currency basket. Today dollars make up 41.9% of SDR, euro — 37.4%, yen — 9.4% and British pound — 11.3%. BRIC countries insist upon the inclusion of their national currencies into this basket, but for now the only possible achievement here might be the vague mentioning of the possible inclusion of Yuan into SDR, which Obama’s administration blurted this January.
Yet another IMF document, published last year — “Reserve Accumulation and International Monetary Stability” — mentions a new global currency named Bancor. It might have been issued by the World Bank. Yet, the changes of the global currency system will seemingly take place in some other way. BRIC countries will apparently promote the currency multipolarity, which means parting with global currencies in favor of the regional one, thus, allowing the state to form the blocs of political and economic interests. This would help them keeping the economic sovereignty. Such ideas have already started to be put into action. In October of 2010 Latin American states have imposed the new currency — Sucre. The first international transaction has already taken place — Venezuela bought five tons of soy-bean oil from Bolivia and the Central Banks of both countries have made an e-payment in this currency, evaluated at a rate of 1.25 Sucre for 1 USD. It is planned for the ALBA (Bolivarian Alliance for Americas) countries to deal with each other this way. This economic union was created in April of 2006 in Havana, where Cuba, Venezuela and Bolivia entered it. The idea was to create counter-poise to the Free Trade Area for Americas, offered by the USA.
To be continued
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