How the Tea Party is brewing up trouble for the world’s currencies
When, decades in the future, historians write the definitive account of the great economic crisis of the early 21st century, the chances are they won’t waste too much ink on the G20 summit that just concluded in Seoul. Or will they?
By Edmund Conway
For the past few months, leaders from the world’s major economies have been sleepwalking their way towards another crisis – one that may rival or even dwarf the financial mess of 2008. In the past few weeks that sleepwalk has become a waking stampede.
The Seoul summit, with its botched compromises and unresolved differences, has only underlined the problem. It acknowledged that there is a growing tension between nations over their currency policies, but revealed that no one can agree on what to do about it. It stopped short of banning competitive devaluation, or setting limits on current account deficits or surpluses, instead retrenching to tried-and-tested phrases from previous agreements.
It isn’t merely that the summit failed to come up with any decent solutions: it failed to diagnose the problem itself properly. The fact that countries are becoming aggressive about currencies is merely a symptom of a far deeper issue: that the international monetary system has failed, and there is no one willing or able to come up with a reconstruction job.
We are in the midst of a shift in international monetary structures, such as happened in Bretton Woods in the 1940s, or in the move to floating exchange rates in the 1970s. The probability is that at least some of the characteristics of globalisation we currently take for granted – free movement of capital, the push to cut trade barriers, independent central banks and free-floating currencies – will not survive many years longer.