Published on Pambazuka News, by Horace Campbell, January 26, 2012.
China and Japan have taken a decisive step to diversify their reserve holdings away from the dollar. African peoples have a lot of lessons to learn from both the capitalist crisis in Europe and this new financial arrangement.
On 25 December 2011, the government of Peoples Republic of China and Japan unveiled plans to promote direct exchange of their currencies. This agreement will allow firms to convert the Chinese and Japanese currencies directly into each other, thus negating the need to buy dollars. This deal between China and Japan followed agreements between China and numerous countries to trade outside the sphere of the US dollar. A few weeks earlier, China also announced a 70 billion Yuan ($11 billion) currency swap agreement with Thailand … //
… The China/Japan currency swap was a bold move on the part of these two economic giants in Asia. There are historic difference between the Chinese and Japanese, especially the experiences of the 1930’s Japanese occupation of China and the Rape of Nanking. Notwithstanding these historic differences the US debt of over US $ 14 trillion along with the inability of the US political leaders to effectively tackle the growing debt has awoken many that the US dollar as the international reserve currency is on its last legs.
In May 2009, Nouriel Roubini in a contribution to the New York Times on the Almighty Renmimbi summed up the decline of the dollar in this way,
‘This decline of the dollar might take more than a decade, but it could happen even sooner if the US did not get its financial house in order. If China and other countries were to diversify their reserve holdings away from the dollar — and they eventually will — the United States would suffer. It would take a long time for the renminbi to become a reserve currency, but it could happen. The resulting downfall of the dollar may be only a matter of time.’
Nouriel Roubini was writing this warning to alert the US rulers to shift gears because of the rise of China. He called for a strategy of investments to recover the US economy declaring, ‘Now that the dollar’s position is no longer so secure, we need to shift our priorities. This will entail investing in our crumbling infrastructure, alternative and renewable resources and productive human capital — rather than in unnecessary housing and toxic financial innovation. This will be the only way to slow down the decline of the dollar, and sustain our influence in global affairs.’
China and Japan have taken a decisive step to diversify their reserve holdings away from the dollar. What is more fundamental is the new rush by other states to join in this new regional currency arrangement. Republic of South Korea is knocking to become central to this swap arrangement while other members of ASEAN are watching these developments carefully. The Eurozone crisis has narrowed the ability of the US to respond negatively to the China/Japan currency swap. Importantly, the capitalist crisis in Europe has stiffened the spine of those elements of the Chinese society who proclaim that the principal task of China is to bail out its own people and transform the economy to benefit the 1.3 billion citizens. These left forces in China are calling for the consolidation of socialism and for vigilance to halt the power of those who are calling for a speedy internationalization of the RMB. These social elements understand the realities behind the call for opening capital markets in China.
It is the left and the progressive forces in China who agree with Mao that the RMB is the people’s currency and that the most important currency is the Chinese people. It is not usual for this writer to quote from Time magazine, but in the arguments of [url=http://www.time.com/time/magazine/article/0,9171,2024220,00.html#ixzz1kXFiPwKO] – Fareed Zakaria[/url] on the question of overvalued currency, this author would concur, ‘The Real Challenge from China: Its People, Not Its Currency.’ (also in PDF).
‘China is beginning a move up the value chain into industries and jobs that were until recently considered the prerogative of the Western world. This is the real China challenge. It is not being produced by Beijing’s currency manipulation or hidden subsidies but by strategic investment and hard work. The best and most effective response to it is not threats and tariffs but deep, structural reforms and major new investments to make the U.S. economy dynamic and its workers competitive.’
And Zakaria might have added that the US cannot be competitive as long as it imprisons the best of the young people of colour in the prison industrial complex.
The lessons learnt from the last capitalist depression are that competitive devaluations, trade wars, currency disputes and new alliances sow the seeds of hostilities and provide the climate for incidents. Incidents then spin out of control beyond diplomacy. The contagion from the capitalist crisis will spread and the forces of socialist transformation will have to be even more alert and vigilant to balance the formation of a regional currency block while supporting the creation of the multipolar world to end the era of dollar and pound/sterling hegemony. Those regions of the world that have not awoken to the slow demise of the dollar need to pay closer attention. Planned diversification away from the dollar is preferable to rushed monetary unions. The African peoples have a lot of lessons to learn from both the capitalist crisis in Europe and the new financial arrangements between China and Japan.