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.
Recent Research Reports
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.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
While Ekurhuleni-based transformer manufacturer Reliable Transformers currently designs, manufactures and tests its products according to the SANS 780 specifications for distribution transformers and other applicable transformer specifications, it is working towards...
Global endpoint security solutions company Kaspersky Lab has introduced new measures to prevent cyber criminals from accessing sensitive data, alongside its malware-signature and heuristic device analysis detection methods. Threats to mobile devices have increased...
To ensure uptake and a positive impact, Wireless Fidelity (Wi-Fi) networks in cities must be provided at schools, community centres and commercial centres to enable citizens and government to access information that will improve access to and delivery of services....
Eco-estate Monaghan Farm, located near Lanseria airport, north-west of Johannesburg, has taken a new approach to modern living and sustainability with its 517 ha development, dedicated to farm living.
Forklift and lift-truck distributor Goscor Lift Hi-Reach launched the Genie SX-180, the tallest self-propelled super boom in Africa, in Johannesburg last month. “As the official distributor of the well-known Genie range of equipment in Southern Africa, we are pleased...
Next ArticleCrisis in Greece provides important lessons