Currency downsizing: evolution or devolution, question-mark
Following-up the long-running tale of sovereign currencies – first this excellent piece in Foreign Affairs, months ago now, then this more recent catch-up with the mooted Gulf Common Currency (for the Gulf Common Market) – Latin America is in on the game:
Ecuador’s President Rafael Correa wants Latin American countries to merge repatriated offshore assets in a fund that would back a proposed regional currency.
Correa, with five other South American leaders, on Dec. 9 signed off on a joint development bank, the Bank of the South, promoted by Venezuelan President Hugo Chavez to counter the influence of institutions like the International Monetary Fund and the World Bank.
“The Bank of the South is an important step but the next step is missing, to create a Fund of the South, a fund that will bring back all those funds that Latin America, particularly South America, holds outside its borders, close to $250 billion, to serve as a backing in the case of financial and balance of payments crises,” said Correa today in his weekly radio address.
The fund could be used to support countries in the event of crises, its returns could be used to fund investments in infrastructure, and its assets could serve to back a regional currency from Mexico to Patagonia, he added.
Rather than booking transactions in U.S. dollars, the countries in the region could use a transaction unit backed by such a fund. “That’s the first step to later have a currency, the latino,” said Correa.
Correa, the 44-year-old economist who studied in Belgium and the U.S., has been one of the most vocal supporters of a unified Latin American or South American currency.
I can’t work out whether this counts as devolution of sovereign currency or evolution. On the one hand it marks the evolution of sovereignty into higher levels of aggregation and representation; on the other, Big Trades are ever-more likely, “going forward”, to involve multiple potential currency bases – devolution – rather than just the US dollar.
I consider both moves to be good ones: the predominance of the US dollar in international transactions – oil, weapons, aid – confers upon the US (and, prior to them, the British) a political predominance that may or may not be either deserving or desired. For the US, specifically, this predominance keeps their currency over-valued, making the risk of precisely what is happening at the moment a carried one through time.
I look forward to seeing, for example, this comparison of the S&P internationally being repeated in a year, once people are done fleeing Wall Street for Emerging and Other Markets.
Meanwhile, as such moves as these pick up both speed, sincerity and credibility (since a lot of this can be laughed off as anti-IMF posturing – although I don’t believe it should), we will probably observe the slow re-valuation (in our own minds, as well as on our exchanges) of the US dollar, the slow boost to the Euro and the Yen (since people need somewhere to go, while we wait for these regional currencies to present themselves), and who knows? Possibly some mature regional co-operation in other parts of the world, as a reaction.