The Global Count-Down To Financial Devastation In 2018 As Told By The Economist, And The Rationale Behind The New World Currency
SHORT COMMENTARY BY MATTHIAS CHANG:
I HAVE ANALYSED CYCLES IN ALL MY PUBLICATIONS AND ARTICLES. THESE CYCLES ARE NOT COINCIDENCES. AND I HAVE DISCLOSED IN MY LATEST BOOK, “THE QI OF LONGEVITY – HOW TO SURVIVE IN TIMES OF VOLATILITY” HOW TO USE A SPECIAL METHOD (BASED ON THE ANCIENT CHINESE SYSTEM OF “QIQONG” AND “I CHING” TO APPRECIATE THE ACCURACY AND THE CONSEQUENCES OF SUCH CYCLES. ALREADY, THERE ARE SOME DEVIOUS AR*&%^## WHO ARE PLAGIARISING MY RESEARCH AND CLAIMING THAT THIS METHOD IS THEIR DISCOVERY. THEY ARE FAKE CON ARTISTS, INDULGING IN INTELLECTUAL MASTURBATION BECAUSE THEY DO NOT KNOW ANYTHING ABOUT QIQONG AND OR I CHING. PLEASE READ THE BELOW REVELATION AND GET PREPARED!
1988 * 1998 * 2008 * 2018
THE TEN YEARS CYCLE
LOOK AT THE DATE STAMPED ON THE “COIN” 2018!
The Economist – January 9, 1988, Vol. 306, pp 9-10
THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much disruption to economic life in the last twentieth century.
At the beginning of 1988 this appears an outlandish prediction. Proposals for eventual monetary union proliferated five and ten years ago, but they hardly envisaged the setbacks of 1987. The governments of the big economies tried to move an inch or two towards a more managed system of exchange rates – a logical preliminary, it might seem, to radical monetary reform. For lack of co-operation in their underlying economic policies they bungled it horribly, and provoked the rise in interest rates that brought on the stock market crash of October. These events have chastened exchange-rate reformers. The market crash taught them that the pretence of policy co-operation can be worse than nothing, and that until real co-operation is feasible (i.e., until governments surrender some economic sovereignty) further attempts to peg currencies will flounder.
But in spite of all the trouble governments have in reaching and (harder still) sticking to international agreements about macroeconomic policy, the conviction is growing that exchange rates cannot be lef to themselves. Remember that the Louvre accord and its predecessor, the Plaza agreement of September 1985, were emergency measures to deal with a crisis of currency instability. Between 1983 and 1985 the dollar rose by 34% against the currencies of America’s trading partners; since then it has fallen by 42%. Such changes have skewed the patern of international comparative advantage more drastically in four years than underlying economic forces might do in a whole generation.
In the past few days the world’s main central banks, fearing another dollar collapse, have again jointly intervened in the currency markets. Market- loving ministers such as Britain’s Mr. Nigel Lawson have been converted to the cause of exchange-rate stability. Japanese ofcials take seriously he idea of EMS-like schemes for the main industrial economies. Regardless of the Louvre’s embarrassing failure, the conviction remains that something must be done about exchange rates.
Something will be, almost certainly in the course of 1988. And not long after the next currency agreement is signed it will go the same way as the last one. It will collapse. Governments are far from ready to subordinate their domestic objectives to the goal of international stability. Several more big exchange-rate upsets, a few more stock market crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice. This points to a muddled sequence of emergency followed by a patch-up followed by emergency, stretching out far beyond 2018 – except for two things. As time passes, the damage caused by currency instability is gradually going to mount; and the very tends that will make it mount are making the utopia of monetary union feasible.
The new world economy
The biggest change in the world economy since the early 1970’s is that flows of money have replaced trade in goods as the force that drives exchange rates as a result of the relentless integration of the world’s financial markets, differences in national economic policies can disturb interest rates (or expectations of future interest rates) only slightly, yet still call forth huge transfers of financial assets from one country to another. These transfers swamp the flow of trade revenues in their effect on the demand and supply for different currencies, and hence in their effect on exchange rates. As telecommunications technology continues to advance, these transactions will be cheaper and faster still. With unco-ordinated economic policies, currencies can get only more volatile.
In all these ways national economic boundaries are slowly dissolving. As the trend continues, the appeal of a currency union across at least the main industrial countries will seem irresistible to everybody except foreign-exchange traders and governments. In the phoenix zone, economic adjustment to shifts in relative prices would happen smoothly and automatically, rather as it does today between different regions within large economies (a brief on pages 74-75 explains how.) The absence of all currency risk would spur trade, investment and employment.
The phoenix zone would impose tight constraints on national governments. There would be no such thing, for instance, as a national monetary policy. The world phoenix supply would be fixed by a new central bank, descended perhaps from the IMF. The world inflation rate – and hence, within narrow margins, each national inflation rate- would be in its charge. Each country could use taxes and public spending to offset temporary falls in demand, but it would have to borrow rather than print money to finance its budget deficit. With no recourse to the inflation tax, governments and their creditors would be forced to judge their borrowing and lending plans more carefully than they do today. This means a big loss of economic sovereignty, but the trends that make the phoenix so appealing are taking that sovereignty away in any case. Even in a world of more-or-less floating exchange rates, individual governments have seen their policy independence checked by an unfriendly outside world.
As the next century approaches, the natural forces that are pushing the world towards economic integration will offer governments a broad choice. They can go with the flow, or they can build barricades. Preparing the way for the phoenix will mean fewer pretended agreements on policy and more real ones. It will mean allowing and then actively promoting the private-sector use of an international money alongside existing national monies. That would let people vote with their wallets for the eventual move to full currency union. The phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today. In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience and the stability of its purchasing power.
The alternative – to preserve policymaking autonomy- would involve a new proliferation of truly draconian controls on trade and capital flows. This course offers governments a splendid time. They could manage exchange-rate movements, deploy monetary and fiscal policy without inhibition, and tackle the resulting bursts of inflation with prices and incomes polices. It is a growth-crippling prospect. Pencil in the phoenix for around 2018, and welcome it when it comes.
The Economist -September 24, 1998
One world, one money
A global currency is not a new idea, but it may soon get a new lease of life
IN DIFFICULT times, people are allowed, even encouraged, to think the unthinkable. Some of the economists who propose capital controls as a remedy for recession in Asia claim to be doing this—but they are flattering themselves. Unthinkable? Malaysia just did it. Dozens of countries still use capital-account restrictions. And it is a cliché of the orthodox “sequencing” literature that a variety of such controls should be retained until other reforms are complete. Really, to think the unthinkable, you have to be bolder than this.
So here is an idea: global currency union. Let nobody call it boringly feasible, or politically expedient. Yet, like all the best unthinkable ideas, it has more going for it than you might think—in principle, at least. The idea is not new. Richard Cooper of Harvard University proposed a single world currency in Foreign Affairs in 1984, and he was not the first to think of it. It seemed an outlandish idea, and still does. But much has happened lately to make it worth a moment’s thought.
The usual way to ask whether countries would be better off sharing a single currency—that is, whether they constitute an “optimal currency area”—is to examine the following trade-off. On one side is the undoubted convenience of a single money as a lubricant for trade and cross-border investment. On the other is the loss of the exchange rate as a shock-absorber for times when one or more of the countries face pressures (an abrupt fall in demand for their exports, say, or a sudden rise in labour costs) that the others are spared—a so-called “asymmetric shock”.
In setting cost against benefit, again according to the standard view, the crucial factors are openness to trade and freedom of movement of factors of production. A small open economy has more to gain from the convenience provided by a single currency. On the other hand, if labour (especially) is reluctant to migrate, the need for the exchange-rate shock-absorber is all the greater. Weighing all this, most economists conclude that the 11 countries that are about to adopt the euro are not in fact an optimal currency area. The world as a whole is not even close.
So what has changed? The main thing is the current global emergency. This is so serious a crisis that it is likely to prove a paradigm-shifting event, though straws were in the wind already. The emerging-market disaster poses the question, How is the world to live with globally integrated finance? In addition, it casts doubt on what once seemed a good answer: that floating exchange rates are the best way to stabilise the world economy.
According to the traditional model, a country with unduly high labour costs, and therefore a troublesome current-account deficit, could expect to see its currency depreciate; this would cut real wages, making imports dearer and exports cheaper, thus neatly restoring the economy to equilibrium. But in a world where international flows of capital overwhelm international flows of trade, this does not work. Floating exchange rates destabilise trade and investment by wrenching relative prices away from their fundamental values (that is, from the values that would put the corresponding exchange rates at purchasing-power parity). In the emerging-markets crisis that currently threatens the world economy, exchange-rate movements have not been absorbers of shocks but amplifiers and even creators of them.
Governments of small open economies have long known that it is not an option to “leave the exchange rate to the market”. Monetary policy must always keep at least one eye on the currency. But governments have also learnt, in a second big change, that intermediate exchange-rate regimes do not work either. That was the lesson of the European Monetary System debacle of 1992-93 (and, arguably, of the downfall of the pegged-but-adjustable regimes used in Asia until last year). Semi-fixed systems cannot withstand the assault of integrated capital markets: they are prone to self-fulfilling panics. In other words, they too are destabilising.
But what does that leave? Let’s see. Pure floating is no use. Semi-fixed is no use. So there are two possibilities. One is to turn back the clock on financial integration: then pure-floating or semi-fixed systems might once again be used successfully. That would be enormously costly, especially to the developing countries; and it would be very difficult, because integration is partly driven by technological progress, which is hard to reverse. Still, it is a fair bet that a lot of countries will follow Malaysia’s example and give it a try. Otherwise, it seems, the remaining course is to combine increasing integration with perfect fixity of exchange rates—meaning currency union.
The fashion for currency boards reflects some of this thinking. Exchange-rate flexibility is more trouble than it is worth, advocates say, so abandon it once and for all. Alas, currency boards suffer big drawbacks all of their own. Whereas a currency union has a central bank to act as lender of last resort, a country with a currency board does not. So these regimes are vulnerable to runs on banks. Currency boards are a poor test of the larger idea.
The all-or-nothing, float-or-merge analysis also provides the case in economic logic for the euro: strive for integration, it says, no holds barred. Unfortunately, EMU is a somewhat flawed test as well. It is a political project as much as an economic one, so it will not reveal everything about how well a currency union among independent nation states might work. But it will reveal a lot, and its symbolic importance will be immense. If it fails, not only will that cause enormous political harm to the European Union, but the pressure for global financial barriers will be greatly strengthened. If it succeeds, the case for a global currency union will seem much more interesting.
Fine, you say, but how would the world ever get from here to there? Hard to say, admittedly. Find the answer to that and the idea would be thinkable.