Magazine article New Internationalist

Heavy Surf & Tsunamis

Magazine article New Internationalist

Heavy Surf & Tsunamis

Article excerpt

Another world is possible / MONEY

Keeping the world's financiers and speculators under control would be like King Canute trying to turn back the tide, according to standard thinking. But would it? Couldn't we come up with alternative proposals that would foster stability and thereby benefit everybody concerned?

Ellen Frank explains why reform of the world financial system is in the interests even of the globalizers.

International financial markets, as any self-respecting critic of globalization can tell you, move some $1.5 trillion round the world on a daily basis - $10 trillion a week, $45 trillion a month, $550 trillion a year; an amount 10 times greater than total world income and 25 times greater than total world trade. As this sea of cash sloshes from shore to shore, it generates heavy surf for the major countries and tsunamis in lesser economies. For the G7 nations, the financial markets are a source of continual instability as exchange rates and asset prices bounce back and forth, threatening profits, wealth and living standards. For hundreds of other nations, the financial seas carry threats of mounting debt, capital flight and currency collapse.

The deregulation of global financial flows - by which national governments lifted restrictions on cross-border borrowing and lending and allowed exchange rates to be mostly set by the market - began in the 1960s with the US, Britain and Canada, not surprisingly, taking the lead. European economies deregulated in the 1970s and 1980s, Asia and the larger 'emerging markets' in the 1990s. Financial deregulation served the broader purposes of international businesses as they sought markets, materials and workers abroad. It allowed businesses to borrow abroad in foreign currencies, enabled firms to repatriate foreign earnings with few restrictions, simplified accounting practices for globally minded businesses. Of course, wherever money is moving about, speculators soon step in, looking to make money on the movement of money itself. By the 1970s, the trickle of international monetary flows had become a river. By the 1980s the river had become a sea and in the 1990s the sea became a flood. By the turn of the 21st century, the sheer size and scope of the financial markets and the havoc they wrought in Asia, Africa and South America seemed to epitomize the problems of corporate-led economic globalization.

But if the international financial markets are a symbol of globalization, they are also globalization's bane, perhaps even its Achilles' heel. If by globalization we mean the determined efforts of international businesses to build markets and production networks that are truly global in scope, then the current monetary system is in many ways an endless headache whose costs are rapidly outstripping its benefits.

When a wave of financial crises struck in 1997, US, Japanese and European banks stood to lose over $100 billion dollars in bad loans to Asia. The IMF stepped in, reorganized the debt, pressured the affected governments to take over the foreign-currency obligations of their private businesses, oversaw the economic 'restructuring' required to ensure repayment and unleashed torrents of criticism and recrimination. The bailouts, progressive critics contended, turned previously debt-free nations like Korea overnight into wards of the international financial institutions, driven to sell resources and assets at deep discounts to Western corporations in order to service unjust debts. In the ensuing few years, a number of South American economies suffered a similar plight. Brazil, the world's ninth-largest economy, lost most of its foreign-exchange reserves to speculators and piled on more debt as part of an IMF agreement. A number of governments, including New Zealand, Argentina and Ecuador, announced plans to 'dollarize' or 'euroize' their economies, to avoid the ceaseless attacks of financial speculators and damaging volatility in exchange rates. …

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