(Weekly Organ of the Communist Party of India (Marxist)
October 17, 2010
The Currency War
EVERYONE is talking now of the “currency war” that seems to be breaking out among the world’s leading economies, each working for a depreciation of its currency vis-a-vis the others. The effect of a currency depreciation is to enlarge the exports of the country undertaking such a depreciation and to reduce its imports, since its goods become cheaper compared to those of other countries. In short, currency depreciation increases a country’s net exports, ie, its market at the expense of other countries. It enlarges the country’s output and employment, but at the expense of other countries, which is why increasing domestic employment through a currency depreciation is often referred to as an instance of a “beggar-my-neighbour” policy.
If world aggregate demand was increasing then there would be little cause for competitive currency depreciations, since domestic employment in each country would be increasing even in the absence of such depreciation. The reason for countries being engaged in such competitive depreciations, ie, in snatching each other’s markets, lies precisely in the fact that world aggregate demand is not increasing, ie, that the world crisis is persisting. Till now the same people who are now so concerned about the currency war were declaring confidently that the world crisis was over, which just shows the superficiality of their understanding. In fact the crisis is going to be prolonged and acute. This explains the currency war, the desperation of each country to improve its position at the expense of its neighbour, since there is no other silver lining on the horizon.
But the currency war itself will deepen the crisis. If there is uncertainty about what the configuration of exchange rates will be some months from now, and hence about what the size of the market of any particular country will be some months from now, then this acts as a disincentive for private investment everywhere, which only compounds the recession. In addition, if uncertainty about relative currency values makes wealth-holders shift to gold or oil-futures, or other commodity-futures, as their preferred form of holding wealth, then this gives rise to inflation; and the typical means of combating inflation in contemporary capitalist economies, which is the pursuit of contractionary monetary and fiscal policies, only worsens the recessionary crisis. In short, the currency war is both a reflection of the abiding nature of the current crisis, and a means of its accentuation.
American, commentators lay the blame for the currency war at the door
so-called “newly-emerging” economies, especially
however misses the point. Suppose
The only way
What is equally striking is that the very same commentators, the very same US Congressmen, the very same spokesmen for finance, who vociferously condemn China’s undervalued exchange rate, are also the ones who, day in and day out, oppose with vehemence any increase in government expenditure anywhere and who are all for rolling back even president Obama’s minuscule stimulus package.
theory that finance capital puts forward, via numerous economists and
commentators who echo its views and are adulated professionally for
is that the free and unfettered operations of markets in a capitalist
automatically brings about a state of “full employment” (which means
not that everybody is employed but that
unemployment which remains is either voluntary or frictional or because the search for jobs, which are in any
case lying around unfilled, takes time). Even in the midst of the
crisis since the 1930s Depression, this position has not been
abandoned. It received
a jolt at the start of the crisis but it has once more regained its
thanks to the assiduousness of the propaganda by financial interests.
does one explain the fact that even in the midst of almost 10 per cent
unemployment rate in the
Now, on the
basis of this
theory, where aggregate demand does not
matter, where Say’s Law, that supply creates its own demand, holds, a
It may be
argued that this
is an unfair inference to draw, that those who are asking for an
of the Chinese currency (and of other Asian currencies), really have in
something altogether different. They recognise that such appreciation
cause unemployment in China, but would like the Chinese State to step
breach by increasing its expenditure, in which case it would have begun
the role of a locomotive for the world economy as a whole, ie, taken
part a role which the US has been playing single-handedly, but which it
longer afford to do. But if this is the argument, namely that
The fact that it is exclusively the latter argument that is advanced by spokesmen of finance and all right-wing forces, suggests something quite different, namely that within the existing world market, China and other Asian countries should yield a larger share to the US and other advanced capitalist economies, ie, the solution to the capitalist crisis in these latter economies should come about through unemployment and recession in China and other Asian economies, much the way that perpetrating “de-industrialisation” on the colonies was the means of achieving prosperity in the metropolis in the old days. This strategy is sought to be camouflaged by the absurd theory that such unemployment will automatically disappear, through the spontaneous functioning of markets; but it is nothing else but a “beggar-my-neighbour” policy being sought to be imposed by the advanced capitalist countries on the newly-emerging economies.
The need for this arises because at the moment there are no prospects of an expansion in the level of world aggregate demand. The leading capitalist country, the US, is not in a position to provide a lead in this regard because any expansion on its part will increase its current account deficit in the prevailing situation (ie, in the absence of recourse to protectionism on its part); countries like China are still not large enough to lead the world in the matter of boosting aggregate demand; and a co-ordinated expansion of world demand by several countries simultaneously providing a fiscal stimulus, is totally unacceptable to international finance capital which is always opposed to any State activism of this sort. With the total size of the world demand thus constrained, “beggar-my-neighbour” policies and currency wars are the only means left for countries to climb out of the recession. Recourse to such policies is bound to intensify. They are a symptom of the impasse in which capitalism is currently caught; and they also accentuate it.