The Y€$ world-economy, por André Bandeira
A currency of Two Oceans
In the Atlantic, one tends to see things North-South or South-North. In the Pacific one tends to see things centre-periphery or periphery-centre. In the Atlantic there is a line with a beginning and an end, either to follow or to deviate from, whereas in the Pacific, things spin around the centre in a recurrent way or they just surface in an area where one hardly finds the centre.
The Pacific Ocean is a renewed American vocation. It has its long-standing enthusiasts as well as its sceptics. But when the Pacific floods American policy, Americans tend to think that they can stay afloat and prevail. If there is something which is common to all American pragmatisms that is the American man and the image that the latter makes of his capabilities, whatever the tides, over the seven seas.
In the Atlantic, there was this attempt of a par of exchange between two currencies, the US dollar (on which the international monetary system has been based) and the Euro. It didn´t work because the market rules underpinning the Euro-zone fell short of its inherent political ambitions.
In the Pacific there was a rebalance between the Yuan and the US dollar. The trick of re-evaluating the Yuan on some conditions has its precedents such as the “monetary serpent” of the late European Economic Community.
A currency, as the name suggests, has to do with some dimension of Economics where fluxes and perceptions come first. In a perfect world there was this prescription signed by Milton Friedman, the k-factor, which basically consisted in expanding the money supply in a moderate and steady way, both a generic and a tonic against exogenous factors, such as wars or oil-shocks.
If Americans benefited of cheap loans, contracted in Chinese currency but thanks to the US dollars reserves in China that means – at the scale of a Pacific Community – the money supply was increasing so fast as the Chinese economy was growing. Besides the dumping caused of Chinese products, stocked in the Wall-mart type stores, both calculations and projections, were being made in cheap Yuan units. That meant too that many Americans were doing their calculations according to the perceived patterns of a low-cost Chinese Economy.
And, here, we have a problem. If a currency is not just like any other commodity, it still has many characteristics of a commodity. And the USA couldn´t indulge in calculating its immediate future, in terms of a commodity whose value was being dictated by Beijing. It would be like pegging one Nation´s Economy to another Nation whose pace of growth is not being coped with by its own authorities.
Americans are nationalists now and then, even when they are not protectionists. This translates into the fact that the US-Chinese Economic and Security Revision Commission, in the Congress, which was inaugurated as the House of Partnership, became the Chamber of Surveillance of a “Strategic Competitor”, as President Bush called China during the electoral campaign of 2001.
The morality of cooperation means, above all, a hierarchy of values according to which, the results of a successful experimentalism are finally given an order. Thus, an American order of values would never allow its Nation to be caught in the whirlpool of the Pacific where the centre hasn’t been defined yet. That was what the re-evaluation of the Yuan was all about: in the set of a re-evaluated Yuan (which means more US dollars for each Yuan) and a relatively under-evaluated US dollar (which means less Yuan for each US dollar) the money supply has shrunk or reduced its expansion.
In the meantime, the price of money was decreased in the British Pound area, by cutting the interest rates and closing in the European ones, while the US Federal Reserve is doing the same, but in the opposite sense, by slightly increasing them.
So, money is neither getting cheaper nor becoming more expanded around the world. It is just attuning by the same token, narrowing down the discrepancies among the different markets, this implying that there is no perfect world but only one to be perfected.
It was said time and again, that the bare increase of the money supply, especially in a monopoly situation, overlooks the influence of many endogenous factors (as representations that people do based on the behaviour of a specific currency and the relative positions of money supplies, in their own wallets).
The problem is not the Chinese monopoly over the Yuan since any currency depends on some degree of national monopoly. The real problem is the strength of Chinese Economy, one that won’t stop surprising the world, despite having now to contemplate the perspective of selling its manufactures, at a less competitive price, abroad. Chinese products will remain alternative but they will hardly show transparency enough in western markets so as to join the mainstream of its competitors. That’s why the bid for labels, as Maytag, UNOCAL or Rover by Chinese Firms is certainly not going to be as fortunate as in the case of IBM.
In conclusion, the situation is not similar to the re-evaluation of the Russian rouble in the eighties, due to the very different dynamics of the private sector in China. Notwithstanding the differences, it will remain another stumbling stone on the way taken by Beijing to direct Chinese economy.
That being said, it is no surprise that the much contended US Ambassador to the UN, John Bolton, coincided with his Chinese colleague, Guangya Wang, in scheduling their rejection of the bid of Brazil, Germany, India and Japan for a permanent seat in the Security Council.
The recent surveys don´t take for granted that Chancellor Schroeder, as the ultimate left leader in Germany, will lose the upcoming general elections, which he, himself, engaged. So, he risks staying a pivot of European Politics.
After all, both Washington and Beijing prefer to keep the old UN chessboard stable. China has enough variables in its set of pawns and the US don’t know anymore whose pawn is their own.