There has been much publicity about the so-called “currency war” arising from the discussions at the recent G20 meeting. Can you explain what is meant by currency war?
The discourse, the rhetoric, on the currency war is very superficial and even misleading. As everybody knows, what is being said is that the Chinese yuan is undervalued and that is bad for the global equilibrium. It is as if China is mainly and exclusively responsible for what is bad in the system. Everyone keeps saying that the yuan is undervalued. Now this is not the real problem. The real problem is the imbalance between the power of the US — that is of the US dollar — and the non-power of the other so-called partners (and therefore are really non-partners) in the integrated global monetary and financial system and market as it presently exists.
The real question is that imbalance. That is obvious when you hear the US establishment speaking. They say, and they repeat it, with arrogance: the dollar is our money and your problem. That is, the US keeps in its own hands the tools for managing its own currency according to its own needs and targets, good or bad. That is indeed what the US Federal Reserve does, which is its central bank — state — ruled by the treasury. The US Federal Reserve has the tools in hand for running its monetary policy as it considers it should be, with no regard to anyone else.
So, the Federal Reserve fixes the rate of interest; it is not the banking system that does that. Whether they fix it high or low in order to serve their targets, whether this is effective or not, they have this right, and they keep hold of that right. And they keep also the right of the Federal Reserve to buy treasury bonds that is to cover, eventually, a budget deficit of the US by inflation, by printing money.
These are the normal rights of a sovereign state, and they keep those rights. Whatever they decide freely and independently has of course effects upon the other partners. It can be damaging, in many cases, on the others. But they don’t care. They say, well this is our money. If you have difficulties with it, this is your problem and you should deal with your own problems.
If this principle is acceptable for the US, then it has to be acceptable for all other countries. There is a basic and fundamental principle of international law which is equal sovereignty of states. That is, if the US keeps for itself those rights, then the same holds for other countries. And that is exactly what China is doing. China behaves exactly like the US, it has kept hold of the tools to manage its monetary policy according to its own targets and needs. It is the central bank of China, which is state-controlled, that decides the rate of interest in China and that decides also — which it is allowed by law to do — to buy Chinese treasury bonds that is to cover by inflation an eventual deficit of the Chinese state budget.
There is no deficit at the moment, but the point is that they keep that right. China is not doing anything different from the US. It is doing exactly the same. It has kept all its sovereign rights, just as the US has also kept its sovereign rights.
So the Chinese would be absolutely right to say to the Americans: If the dollar is your currency and our problem, equally the yuan is our currency and your problem! So, you (the US) have to solve your problem, rather than put the blame on us.
Additionally the problems of the US are not the result of China’s doing, they are the result of the failures of the US in many areas related to the governance of corporations, education and R and D, financial management etc. And therefore there is no reason why China should accept the dictates of Washington, and frankly it is not accepting them. But the propaganda continues incessantly — it is China, it is China, it is China.
What is very curious in the present state of affairs is that, unfortunately, no other country than China retains those rights. No other major partner (of the G20) has fully retained those rights, although some of the emerging countries such as India and Brazil have done something to that effect. Instead, they have generally accepted the dictates of the US.
Indeed, “Euroland” has castrated itself by the Maastricht and Lisbon agreements. It has adopted for itself curious rules for the running of its so-called European Central Bank — which in effect is not a central bank (since there is no European state which has the responsibility to run it). It is not allowed to lend to the states, whereas the US Federal Reserve and Treasury is indeed allowed to lend to the state, just as the Chinese central bank is allowed to lend to the state.
The reason for that unbelievable attitude, again, is that there is no European state and that the Union does not trust the European national states. The decision not to lend to the states therefore proceeds from the curious belief that the exclusive role of the Central Bank is to prevent at any cost any dose of inflation! The rule of ‘no inflation’ has been made an absolute principle — which is absolutely silly.
Prodi, the former chair of the European Union, said this was idiotic. And indeed it is. Similarly, the European Central Bank does not decide on the interest rate. It leaves it to the so-called “market.” Effectively this means leaving it to the major banks, which are the European as well as American and even Japanese banks operating in Europe. Thus the European Central Bank has in effect castrated itself. So, the Europeans are not in a position to tell the Chinese that it is their fault. It was not the Chinese who set the rules of the European Central Bank! If the rules are silly, idiotic, that is the fault of the Europeans.
As for the other partners, that is Great Britain and Japan, they have accepted, and continue to accept, to align themselves behind the US and to leave to the US the management of the global integrated monetary and financial system. In other words, they have accepted the fundamental imbalance in favor of the US. This is also their problem: if they have decided to follow the dictates of the US, why should they complain that China does not! The Europeans and Japanese have the right to manage their own currency just as the US and China do. But they have made a political decision to align themselves with the US. Therefore any consequences of this choice of theirs is not the responsibility of China.
It is important to understand that this is the central problem. The problem is the global integrated monetary and financial system, ruled as it is by the dollar, that is ruled by the exclusive prerogative of the US Treasury and Federal Reserve, of the US state. This is not acceptable. That is the problem. The problem is not the exchange rate of the yuan or the rupee or any other currency. Absolutely not.
What are the dangers for Africa of the current influx of capital?
The dangers are enormous. What we see is the plunder of our resources, just as we saw with the financial crisis of Asia in 1997-8 and as we now see it in the current financial crisis.
Our response to this challenge should be effective, and to that effect we have to reestablish national control of the financial flows, just as the Chinese are doing — they are controlling the flows of finance to China. So, depending on what we think is important in order to meet our needs, we may accept foreign direct investment (perhaps with reservations and conditions on which it is up to each country to decide) — but we must reject speculative financial flows. There is no reason why we should accept in Senegal, in Indonesia, in Kenya that foreign banks are allowed to throw in money, finance a financial bubble, plunder our resources, and then run away. We should reestablish exchange control of capital flows. That is the only answer to the challenge.
Many people say that Chavez in Venezuela has been able to negotiate and drive certain reforms because he has a strategic natural resource — namely oil. But, in Africa, we too have huge natural resources. So why is it that we have not been able to do what Venezuela has?
The difference is essentially political. The progressive social forces in Latin America have been able to grow and they have grown large. They have developed programs which are essentially nationalist — and I consider that as positive — along with progressive social content. This has led to political changes of a variety of types. That political change has created favorable conditions for another pattern of management of their natural resources such as oil.
The problem in Africa is that the struggle of the peoples for social progress associated with the reinforcement of national independence, which was the program of the movements for national liberation, has been discontinued and that consequently our ruling classes have turned comprador. These ruling classes are benefiting from the system as it is, while social movements remain fragmented and exclusively on defensive positions. They have democratic and socially legitimate demands, but they have to integrate in their programs national policies, political alternatives which take care of the need to control capital flows.
At the forthcoming World Social Forum in Dakar in February 2011, the World Forum for Alternatives will be actively engaged to connect with the social movements with a view to having them include into their programs political targets. In that frame the issues related to the management of macro policies, the issue of management of the national and regional financial systems, will be raised. We will also be raising the issue of the military as well as other international issues which are obviously related.
Samir Amin is an Egyptian economist. The interview above is an excerpt from the interview conducted on 18 November 2010 and published in Pambazuka News on 25 November 2010 under a Creative Commons license.