Currency Schemes

Apologies for the lack of links, I am 'remote blogging'.

The world is awash in schemes for monetary unions which are either in place or seriously being contemplated. From the Khalijee of the gulf states, through the ECO of West Africa, to the functioning CFA and Euro systems, finance ministers and central bank heads are contemplating the monetary benefits of single currencies, as well as currency co-ordination.

Instinctively, I think that currency unions imply a pooling of sovereignty and a political association which is in most cases anti-democratic. I am not so much concerned about democracy as about the idea of a republican form of government; that is, a form of government under law in which the state is as restrained as it can be and citizens are as free as possible.

It is perfectly possible for this sort of order to subsist under a competition of currencies. There were dozens of currencies flying around trade in the big cities of the Atlantic seaboard and the Baltic for most of the past thousand years, for example. Most of those in the market got along. Yet, in such circumstances, currency management and risk are placed explicitly and mostly on those using the currencies, and many can’t cope, or are excluded from the game. In a state-based system, states, which have access in theory to more qualified and secure individuals, could in theory manage monetary policy a little better.

However, the past few years, as now must be obvious to everyone, have given the lie to that latter course. A national currency managed by truly free markets or minimally checked against trade or other currencies might be a happy medium for all but those wedded to economies based on the sort of speculation in which the City of London specializes. It was this speculation that became very strong in the late twentieth century; this which demanded the sacrifice of the miners, and of all manufacturing industry; this which pillaged budgets in return for the high returns of a temporary globalism.

You can’t blame some in Britain for caution about currency union schemes, however. The gold standard after 1926, a decade following Britain’s loss of preeminence, was a political disaster, because British people associated its end in 1931 with the deflation of the Great Depression. Bretton Woods coincided with a postwar boom, but then collapsed when the US couldn’t run a gold account; and as for the ERM, well, it was a case of terrible management and an uncoordinated—probably irreconcilable—economic cycle.

The whole story of Britain and currency arrangements it doesn’t run is of a Burton-Taylor marriage; a short, brief irrational courtship is almost always followed by tears, tantrums, breathtaking selfishness and smashed crockery. Then the mascara and whisky start flying and both or either start heading for the door.

Despite that, Britain is being pulled along by events. Russia, full of gold, seems keen on a new gold standard; China wants a sort of super-Special Drawing Right of the type once contemplated by James Callaghan and Gerald Ford; Euroland wants a multipolar world that will balance the Euro; and the United States cannot afford and is not interested in the leadership of the world financial system.

As I wrote, it is no surprise that the bankers want mixtures of currencies based on commodities, or on panel-based assessments of who is a creditor and who is a debtor nation organized through the IMF. It’s not that there is any sort of plan to get to that, just that the rich tend to move in shoals in the face of pressure, and many of them seem to have decided that a more reliable global currency than the dollar is overdue.

I expect to see many more financial unions put in place, rather like customs unions were stepping stones to the various GATT and WTO agreements. The lesson of the past century is that such unions didn’t lead to overt trade blocs, but were managed into globalization. Along the way, any pretence that they were not explicitly vehicles of the market were accelerated by the social science graduates who ran them and neither understood nor carried any spiritual capacity for argument with the systems they had created.

My problem with all of this is quite simple. It excludes most of the working and farming people of the world, it is associated with turbo-capitalism, it is difficult to see it being managed properly, and, if we run out of oil and other commodities before we as a civilization tap fusion power and new means of production, it will become a straitjacket for countries with any sort of labour standards at all.

You can see this coming. Sensible people, for or against, should start adapting the state for a world in which crazy flows of capital are going to be restrained, repressed, or dangerous to play with. The first step is calming down public finances, eliminating wasteful private deals that socialize debt and privatize public revenue, and encouraging local credit and local co-operatives. The second, as the marines say, is to get ready to grab our family jewels and run.