Currency Unions After the Euro

The world is full of currency schemes. SDRs, Khalijees, East African Shillings, Ecos, ASUs, and Tasman Dollars currently follow stages of gestation and quickening which would trouble St Thomas Aquinas, for example. There;s nothing, after all, that wrong with a currency union per se. I live in one; the purchasing value of the pound in London, the North, and the various parts of Cymru-Kernow varies, both between the regional areas and with regard to the Isle of Man, Scotland, and Northern Ireland, which all technically issue their own currency. I suppose since regional inflation is a given, regional real interest rates differ, but there is no mechanism for the difference to be expressed beyond regional differences in unemployment and government spending. From a London perspective, the thing seems to work reasonably well.

You would have thought that the eurozone's ongoing crisis had poisoned the well of any less national schemes, but the world seems to have decided that the continental folly is simply a matter of the exception which proves the rule and to leave things at that. Europe, after all, should never have had a single currency, or at least not when it did; a parallel currency yes, a single currency, no.

The single currency enabled an historically underperforming Germany to lock in a low rate of Deutschmark to the euro, so that when it returned to form after digesting the East, it had a built-in trade advantage. An historically highly-rated set of Mediterranean currencies were allowed to join and to exploit the new system to fuel a credit boom, at the cost of ever devaluing externally again. They weren't forced to reform internally. A low-wage east with flexible currencies was allowed to offer cheap, skilled labour in a way that undercut the South's labour advantage when times got tough, and that built up the German-led North's surplus; and a worldbeating financial centre with a bond and exchange market big enough to make the currency a world reserve, Britain, was allowed quite rightly to stay out.

No adequate mechanism was developed for adjusting the pressures in the different parts of the zone, other than an interest-on-bond mechanism that invited shady gambling and the form of financial badness known as arbitrage. The thing was a triumph of hope over experience; Miss Havisham married off to Mr Micawber.

Now that the crockery is flying next door in so obvious a fashion, why are so many states playing with currency ideas? I think that there are three reasons, beyond the obvious one that would cut this little ramble short, that it's in their interest to do so. One is the preparation which some might think to make for the gradual decline of the United States Dollar, given the way the Americans seem determined to run their economy.

A second is the evident and unfolding fear that China is on a long-term path, gilded by gold purchases and hedged bets that mysteriously appear about two months before renmimbi bond issues occur in Hong Kong, to float its currency without buying into the IMF's Special Drawing Right. This is something that could very much destabilise the world.

My third reason is the way reviving the ghost of the Imperial pound sterling could make sense of trade between Australia, Canada and New Zealand, and help eliminate the danger that those countries become satraps of China or India in the way that the African seaboard is being invited to do. Who knows? With Singapore and Hong Kong gone, and trade routes oriented North and not West, someone has to give Perth a reason to exist whilst restraining the Aussie bubble.

But perhaps my vision is confused, or at least too limited. Fiat currency, like the British monarchy and to a lesser extent the Vatican, is often most to be suspected when it is pretending to be immutable and eternal. It's not that long ago that banks issued their own notes, which could be accepted as payment for taxes or in settlement of third party debt; nor, beyond that, is the time when Gold mattered that far away. What is far away is the nominal constraint which the existence of private or gold-based money placed on governments and banks, and many people--not just Ron Paul--crave that time back.

Once you see that, you run into an epiphany like a drunk sobering up on coke in a bar. Money schemes aren't there for the expansion of productivity or trade as such. They reflect what the philosophers would call ontologically embedded paradigms of control. States have somehow realised what critics of money muliplier theory and neoclassical economics are grasping--that banks create and destroy electronic money of any denomination as they wish without a link to an existing deposit or reserve.

The logic of that is that states and central banks cannot control the money supply. To maintain the illusion that they do would require permanent recession, or local currency integration--a thing which, in turn, would allow the oligopolies and abnormally profiting conglomerates that globalisation throws up the chance to dominate several countries whilst pretending to be competitive across a region or the world. The needs of capital and power, the old Iron cross, thereby cohere. Perhaps international bureacracies and the social science class which run most modern states then see that their empires need clothes; perhaps they are seduced by the idea that this time, things will be different.

When the history of the time in which we live comes to be written, I think that its strangeness will be seen to have preceded the beginnings of the understanding that capitalism, computers and system-thinking had changed the world just as the resources began to be severely depleted. States undermined traditional families whilst pretending to take over their duties, and life became a consumer choice whilst many drowned in debt. A single currency for the region was grasped at by many as a way of pooling power in the face of the choices that this depletion of resources, families and spirits imposed inside and outside of people's heads. As in the old Roman story, people sought to transfer their slavery from ideas to monies to the interests of capital and back again, in ever increasing revolutions.

But then, I hope, enough will say, 'stop', just as a man nailed to a tree just under nineteen hundred and seventy nine years ago in Jerusalem did. I wonder what will happen then?


Popular Posts