ORIGINAL FRENCH ARTICLE: Le dollar en tenue de combat
by Pierre Ivorra
Translated Friday 23 October 2009, by Derek Hansonand reviewed by
Currencies: The drop in value of the US currency puts pressure on the euro and on economic recovery in Europe. But the G7 is careful not to evoke the risks that the dollar creates for world development.
The beginning of this week , the dollar did not react to the meeting of the ministers of finance of the G7 (the principal capitalist countries) who met during the weekend in Istanbul, not far from the general assemblies of the International Monetary Fund and of the World Bank. The US dollar continues to lose ground with respect to the euro and other principal currencies. In the period of a year, it has lost 7% of its value with respect to the European currency, in a movement that has been accelerating of late.
We must report that in Istanbul the big money managers contented themselves with saying that they would "continue to keep a close eye on the money markets", without announcing, however, any joint intervention to help brighten the prospects for the dollar.
But before this audience, weren’t the leaders of the G20 nations being awfully careful not to raise the question of the dollar?
The Big Powers are Playing "Liar’s Poker"
The fall of the green-back seems nevertheless in contradiction with the declarations of the US Secretary of the Treasury, Timothy Geithner, who, again yesterday, took a position "in favor of a strong dollar."
To tell the truth, these monetary maneuvers of the world powers are nothing but a game of Liar’s Poker. As for the dollar, to begin with, it is being dragged down by the enormous foreign debt of the US. It is the only nation on earth to possess a national currency that is, at the same time, a universal currency. So they can continually go into debt to other nations, and pay back ... in dollars. They turn on the printing presses , they assert that’s why your daughter has lost her voice , their State Secretary for the Treasury is loquacious, and the dollar weak.
Washington is tempted by the Weak Dollar
At the same time, there are US leaders who wish to use the monetary weapon to start economic recovery, to the detriment of other countries. A weak dollar permits them to give a boost to their exports, notably in the euro zone and in China. They are putting China in particular under great pressure. It is for this reason that, even if the G7 takes care not to evoke the risks that the dollar poses for world economic development, it does make specific reference to the Chinese currency in its communique, encouraging Peking to revalue the yuan, and thus to reduce exports and increase imports.
This movement of the dollar is likewise accelerated by the attitude of the leaders of the euro zone. In rivalry with the Unites States, they cultivate the policy of a strong euro in order to attract capital to their financial markets in Frankfort and Paris, setting higher interest rates than those on the other side of the Atlantic. This is a dangerous game, and risks extinguishing those occasional signs of recovery that are perceptible in certain countries on the Old Continent. This explains in part the recent predictions by the International Monetary Fund that Europe will see "a slow and fragile recovery."
Just how far will the dollar fall? Its collapse would evidently provoke a veritable cataclysm. And it is because he is conscious of this risk that Timothy Geithner multiplies his pronouncements in favor of a strong dollar. This is nothing other than a demand for other countries to support the US currency. As John Connally, Treasury Secretary under Richard Nixon, said to the rest of the world: "The dollar is our money, but it’s your problem."
Can things remain in their present state? Not so simple. The Chinese authorities are not inclined to yield on the question of revaluing their currency. Other countries, such as Brazil, Venezuela, Russia, India, ... are looking for their own ways to get out of the straitjacket of the dollar. It was rumored yesterday that the Gulf countries, together with Russia and China, were discussing replacement of the dollar as the basis for the oil market, for petroleum exchanges.
The question of an alternative to the dollar, of another common world currency, put forward last March by the Chinese authorities, shows signs of being back on the table.