Oct 29, 2010
Currency wars and other mythsBack
Africa|System|Africa|China|France|Germany|Japan|South Africa|United Kingdom|United States|Mainstream Business Media|Services|Francis Fukuyama|Margaret Thatcher|Power|Pravin Gordhan
© Reuse this
These fears reflect concerns about the broken state of the global economy more than the actual threat of economic wars. The rich countries, particularly the US, Germany and Japan, have been mani- pulating exchange rates and protecting different economic sectors while perpetuating the myth that they are the champions of free markets.
The myth that neoliberal globalisation has led to free markets is what drives the rhetoric about currency and trade wars when developing countries work to protect themselves from huge financial and trade instability in the global economy. Unfortunately, senior economic policymakers in South Africa have swallowed the myths and do not seem to be willing to take the necessary defensive actions to protect the South African economy from the threats in global markets.
The myth perpetuated during neo- liberal economic globalisation over the past few decades was that the developed countries had moved away from managing their currencies and protecting trade. The myth was that they had free markets. There was a huge programme to convert all developing countries to free markets. In fact, we were all led to believe that the integration of trade and financial markets through economic globalisation was inevitable and that countries resisted this inevitable process at great peril. In the words of Margaret Thatcher: “There is no alternative.”
We were supposed to believe that the US had achieved the ultimate system and, according to Francis Fukuyama, we had reached the “end of history”. However, the reality was that the powerful developed countries had not moved to free trade and had manipulated their exchange rates. For example, the Plaza Accord, in 1985, was an agreement between the US, Germany, Japan, France and the UK to depreciate the dollar relative to the German mark and Japanese yen. These countries used their economic and political power to support their economic interests. They used global financial institutions to serve their own agendas. And they continued to blatantly subsidise and protect their agricultural sectors, while loudly espousing free trade rhetoric.
The myth that there were free markets was so strong that, today, when more countries assert their rights to protect domestic markets or to devalue their currency, we face alarmist cries about trade and currency wars. All the while, the most powerful countries rigged the game in their favour, while telling us all was free and fair.
The world is recovering from a period where the richest countries allowed their financial institutions to wreak havoc. An important part of this havoc was the creation of mountains of debt that allowed people in those countries to behave as if they were rich without actually producing enough services, goods and new technology to match the amount of goods they consumed and the money they wasted. This eco- nomic activity and debt creation led to a huge economic imbalance.
US policymakers have pursued a weaker exchange rate over the past few years in response to this economic imbalance. They have tried to use their economic and poli- tical power to pass on the costs of their debt-driven consumptive behaviour to the rest of the world. China has correctly pegged its currency to the dollar. Other countries negatively affected by depreciating US and Chinese currencies have correctly depreciated their currencies.
It is time that South African economic policymakers look beyond ideology and unrealistic economic models to face up to the fact that, if we are to deal with poverty and unemployment, we should also be managing our exchange rates and protecting our local industries.
During this global economic downturn, where we can expect a drawn-out and uneven recovery, the need for managing our economy and currency is vitally necessary. By so doing, we will not be participating in a war, but we will be operating in the global economy on the same terms as the powerful economic players.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Seeraj Mohamed News
The Corporate Strategy and Industrial Development Research Programme (CSID) - the University of the Witwatersrand's (Wits') economics policy research unit of which I am director – hosted a launch of the Department of Trade and Industry’s (DTI's) capacity building...
We enter 2011 with much global economic uncertainty. South Africans should consider the country's economic policies and activities within the context of an uncertain and volatile global economy.
Updated 5 hours ago Canada’s Barrick Gold Corp will suspend operations at its Lumwana copper mine, in Zambia’s Northwestern province, after the country enacted legislation that raised the royalty rate on openpit mining operations from 6% to 20%. TSX- and NYSE-listed Barrick, the world’s...
Recent Research Reports
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
This Week's Magazine
South Africa remains an important manufacturing and export platform for Ford Motor Company, says executive chairperson Bill Ford. However, he adds that other countries on the continent are “becoming interesting”, and that the US carmaker is casting its net wider for...
Germany’s Max-Planck-Society (MPG) and the Max-Planck-Institute for Radio Astronomy (MPlfR) are investing €11-million (about R150-million) into South Africa’s MeerKAT radio telescope array programme. The money will be used to design, build and install S-band radio...
Infrastructure spend in sub-Saharan Africa will grow from $70-billion in 2013 to $180-billion by 2025, says PwC capital projects and infrastructure Africa leader Jonathan Cawood. This is one of the findings of PwC’s Capital Projects & Infrastructure report on East...
Private-owned defence and aerospace manufacturer Paramount Group and the Ichikowitz Family Foundation unveiled its Anti-Poaching Skills and K9 Training Academy in Magaliesburg last month.
The inclusion of Bluetooth to provide sub-three meter accuracy and heightened functionality for users is one of the ways to change existing wireless networks into engagement networks. An engagement network differs from common wireless networks in that it enables the...
Next ArticleCrisis in Greece provides important lessons