THE NEW WORLD CURRENCY CRISIS

By Robert Kurz

[This article published in: Neuen Deutschland, 5/4/2007 is translated from the German on the World Wide Web, http://www.exit-online.org/druck.php?tabelle=autoren&posur=306.]




As paradoxical as it sounds, the globalization of capital contradicts the money system. As a world state is hardly possible, there can hardly be a world money. Money only exists in the form of national or regional currency regulated by the respective central banks. This was unproblematic up to World War I since the most important currencies were bound to the gold standard. The exchange rates were somewhat fixed. When the universal gold standard broke down in the epoch of the world wars and the worldwide economic crisis, no standard for currency relations existed any more and the world market collapsed. Then in 1944 the foundations for a world economic post-war order were laid in the US winter sport villa Bretton Woods. The dollar as the new world trade- and reserve currency madder possible a system of firmly fixed exchange rates. The stability of this system was guaranteed since the dollar was the only currency convertible to gold.

On this basis, world trade and capital export increased by leaps and bounds. However the US lost its absolute superiority as an industrial- and export-state. The gold reserves of Fort Knox melted. In 1973 the system of Bretton Woods had to be cancelled. The exchange rates turned into uncontrollable fluctuations. This world currency crisis can only be cushioned if the dollar remains the world money. But the hegemony position of the US (“safe harbor”) was its only irrational foundation. When the balance of payments deficit of the US toward Japan escalated out of control in the 1980s, the dollar threatened to fall after wild swings. This crash was cushioned by agreements of the most important western central banks. But the problem swelled even more. In the meantime there is no world region that does not show growing balance of payments surpluses in relation to the US. After Japan and the tiger states, the Chinese export machine built by transnational corporations drives the powerful upswing of the Pacific deficit cycle and the world economy.

The balance of payments deficit of the US has nearly doubled since the 1980s. According to economics textbooks, this unparalleled “imbalance” must be corrected by an upheaval in exchange rates. With a drastic devaluation of the dollar and an upgrading of Asian currencies, the export dance would abruptly stop and Japan’s and China’s astronomical currency reserves would be dramatically devalued.

In the US an inflationary thrust can be expected. Therefore the Asian currencies are kept artificially low through central bank interventions. On the other hand, the euro rises like the price of gold. Up to now, these warning signs were ignored. Since the euro is neither “covered” by gold or by a superior military machine, it is more than unlikely whether it can replace the dollar as the world trade- and reserve currency (this would cause incalculable turbulences). A “hard landing” of the dollar and a new uncontrollable world currency crisis become more likely the longer the Asian exchange rate correction is delayed. Then the latest upswing triumphalism will be over.