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Empire & the dollar standard

One of the way ways that empire works can be discerned in this article abouth dollar standard by Niall Ferguson. He says:

"As in the 1960s, it is not difficult to make the case that this system is highly beneficial to the US. Over the past decade or so, the American current account deficit with the rest of the world for goods, services and loans has grown dramatically. Add together the deficits of the past 12 years and you arrive at a total external debt of $2.9 trillion."

Ferguson says that the rapid role reversal - from world's banker to world's biggest debtor - has had two advantages for Americans:

"First, it has allowed US business to invest substantially (notably in information technology) without requiring Americans to reduce their consumption.... The second payoff, however, has taken the form of tax cuts rather than private sector investment. The dramatic shift in the finances of the federal government from surplus to deficit since 2000 - a deterioration unprecedented in peacetime, according to the IMF - has been substantially funded from abroad."

Ferguson says that this big free lunch continues because foreigners are willing to buy the new bonds issued by the US treasury at remarkably high prices. The purchases are being made by public institutions - the central banks of Asia. he says:

"The Asian central banks' motivation for doing so is simple: to prevent their own currencies from appreciating relative to the dollar - because a weak dollar would hurt their own exports to the mighty American market. Were it not for these interventions, the dollar would certainly have depreciated relative to the Asian currencies, as it has against the euro. But the Asian authorities are willing to spend whatever it takes of their own currency to keep the dollar exchange rate steady."

He says that this Bretton Woods junior is an Asian system of pegged exchange rates which keeps the Asian economies' exports competitive in the US while at the same time giving Americans a seemingly limitless low interest credit facility to run up huge private and public sector debts.

This is a decentralized conception of empire.

Ferguson goes on to suggest that the dollar standard has a limited historical life since no monetary system lasts forever. It could start with Asians and Europeans selling their goods somewhere other than America. And they may come to recognise that the emergence of the euro as an alternative reserve currency to the dollar creates a chance to fundamentally shift the centre of gravity of the international economy. If the Europeans seize their chance, Americans could face the end of half a century of dollar domination.

Hence empire is something other than American domination-- Pax Americana.

Posted by Gary Sauer-Thompson at June 11, 2004 11:57 PM | TrackBack