Chronicles of a currency war
G20 was the hurried up way to fully incorporate BRICs into financial regulation and fiscal policy coordination and global decision making (as for monetary policies, they are are alreadly informally coordinated, inasmuch as possible and sound, by the CBs “club”). We discussed at length its first moves in this blog (see December 2008 posts).
At the first real crisis, 2 years after it doesn’t work AT ALL. To make things simple, Obama has no more a proper leadership (max, just agenda-setting powers), and Chindia is not yet nor soon the new Empire (and such an empire will substantially depend upon the path eventually leading to it).
The sharp division created on the one hand by “helicopter” Bernanke’s $0.6 trillions QE2, and on the other by yuan’s under-valuation by an est. 19% (source: Peterson Inst. of Int.l Econ.), would have been quite easy and straightforward to deal with and solve, had a proper bargaining environment been there. It wasn’t.
The near future will tell us if it is just the G20 who’s dead, or the willingness to bargain, or both.
Inspired by the noisefromamerika blog style, and specifically by a quite similar table (same structure) at page B14 in Folha de S.Paulo today, here is its last outcome.
EXPLAINING THE G20 FINAL DOC
IT SAYS\IT MEANS
To evolve towards exchange systems more market determined: by stressing the exchanges’ flex in order to reflect the underlying fundamentals, and avoiding competitive devaluations.
This point is FULLY anti-Chinese, because this is the country whose exchange control is more striking, and particularly US-annoying (the US leaders being so stupid, that they do not want to change their economic base, even after such a momentum crisis; if they had a proper Industrial Plan, they wouldn’t care much about the yuan). Message: China must undervalue, but under-valuation in general must not be used as a weapon, a pro-X (eXport) policy (a basic lesson from the 1930s katastrophe’).
2. Flow of capitals
The advanced economies, incl. those issuing reserve-currencies, will vigilate against disordered changes in the exchange rates. Their actions will help to prevent an excess volatility in the ST capital influx towards some emerging countries.
This is the compensating anti-US point. The yankees must stop to print money in order to buy credit. In Brazil as in China and elsewhere, Helicopter Bernanke’s $ create speculative K inflows, hence potentially Greenspan-style bubbles in commodities or housing. No, thanks. $ go home!
The IMF might play a role here, by developing further the MAP (Mutual Assessment Process). The final target is ambitious: to match external stability together with fiscal, monetary, financial and exchange consistency.
Obama’s +\- 4% GNP threshold (for S-I = X-M surpluses) has been thrown to the garbage. Now the IMF “arbiter” must deal with the hot potato, and is called to some persuasion hard job. But the Empire-like (centre-periphery) divergence between over-saving BRICs and under-saving North Atlantic old powers is always there, and no one knows how to deal with it. Empires’ history tells how to do (read Marcello de Cecco, e.g.).
4. Safety nets
Make stronger the global financial safety nets, in such a way as to help the countries to cope with financial volatility.
If one country is financially sound (not Greece), but is hit by a financial exogenous choc, it will have title to receive credit and emergency help.
5. IMF reform
The leaders approve their Ministers’ decision to widen the participation of dynamic emerging countries to IMF shares.
BRICs and NICs will put more money in the IMF, hence get more power. The IMF’s architecture will (in part) close the gap with the economic geography of the real world.
6. Financial system reforms
The financial system regulation must become stronger, with tighter capital and liquidity requirements.
Here was the G20 good start, with the Commission coordinated by Draghi, which has been working meanwhile. Vikram Pandit, the Citi’s CEO sent a mafioso message to the G2o on the Financial Times: to impose higher capital and liquidity standards might have a significant negative impact upon banking systems, consumers and economies. Here the G20 returns compact once, in order to face the Financial Criminals that did not respond anywhere of their sub-crimes. But the banks have already won the game. The proof is that Mr Pandit, after blackmailing all the past and future superpowers and their intelligences, is still alive.
7. Fiscal policies
Advanced countries must adopt such fiscal re-adjustment plans as to be “clear”, and “pro-growth”. Paying atn that they risk to deteriorate the economic recovery.
Leaders come over one year of impasse (US versus EU, lead by “Empire of austerity” Germany) between applied “keynesism” (keep State budget deficits high) and avoiding Sovereign debt collapses (reduce State deficits). The inner ambiguity of the issue is recognized.
8. Doha Round
A strong commitment to a success of the commercial liberalisation.
They keep saying it, but they don’t really mean it.
The reality of the 2007-2011+ crisis is of course against free trade (at least temporarily). Doha Round never took off since from its start in 2001. Now it’s unofficially dead.
At the opening of the G20, two closest allies such as the US and SK could not announce a bilateral free trade agreement. That was the sign that the atmosphere was really, really bad.