[펌-월러스틴] The Sinking Dallar

월러스틴 옹의 새로운 글, 달러의 가치 하락에 대한 우려가 점점 커지는 듯 합니다. 과연 미국은 어떤 선택을 할지... 커지는 재정적자와 떨어지는 달러의 가치. 이 추세가 계속된다면 미국이 취할 수 있는 방법이 무엇이 있을지 궁금합니다. 결국은 이자율을 높이는 방안? 질문은 반대로 할 수도 있겠군요. 즉, 현 상황에서 미국의 금융시스템이 버텨줄 것인가? 만일 그렇다면 달러가치가 하락하고 재정적자가 증가하더라도 어떻게든 버티겠죠. 하지만, 이런 상황에서 금융시스템 마저 위험에 빠진다면? 결국 달러가치를 살리기 위한 결정을 할 수도 있지 않을까 싶습니다만, 아무래도 어려운 일일듯 합니다. 그 정치적인 부담이 말이죠..

월러스틴 옹이 말한 '현재의 양적완화가 버블로 밝혀진다면..' 이라는 구절은 결국 실물경제의 회복이 동반되느냐 그렇지 않느냐로 가름될테고, 이는 그 판단에 아직도 꽤 오랜 시간이 걸릴수도 있다는 이야기입니다. 혹은 아무도 예상하지 못했던 순간에 닥칠 수도 있죠.

May 15, 2009, Commentary No. 257

"The Sinking Dollar"

When Premier Wen Jiabao of China said in March of 2009 that he was"a little bit worried" about the state of the U.S. dollar, he echoedthe feelings of states, enterprises, andindividuals across the world. He called upon the United States "tomaintain its good credit, to honor its promises and to guarantee thesafety of China's assets." Even five years ago, this would have seemed a very presumptuousrequest. Now it seems "understandable" even to Janet Yellen, thePresident of the San Francisco Federal ReserveBank, although she considers China's proposals concerning the world'sreserve currency "far from being a practical alternative."

There are only two ways to store wealth: in actual physicalstructures and in some form of money (currency, bonds, gold). They bothentail risks for the holder. Physical structuresdeteriorate unless used and using them involves costs. To utilize suchstructures to obtain income and therefore profits depends on the"market" - that is, on the availability of buyerswilling to purchase what the physical structures can produce. Physical structures are at least tangible. Money (which isdenominated in nominal figures) is merely a potential claim on physicalstructures. The value of that claim depends on itsexchange relation with physical structures. And this relation can anddoes vary constantly. If it varies a small amount, hardly anyonenotices. But if it varies considerably andfrequently, its holders either gain or lose a lot of wealth, oftenquite rapidly.

A reserve currency in economic terms is really nothing but the mostreliable form of money, the one that varies least. It is therefore thesafest place to store whatever wealth one hasthat is not in the form of physical structures. Since at least 1945,the world's reserve currency has been the U.S. dollar. It still is theU.S. dollar.The country that issues the reserve currency has one singularadvantage over all other countries. It is the only country that canlegally print the currency, whenever it thinks it is in itsinterest to do so.

Currencies all have exchange rates with other currencies. Since theUnited States ended its fixed rate of exchange with gold in 1973, thedollar has fluctuated against othercurrencies, up and down. When its currency went down against anothercurrency, it made selling its exports easier because the buyer of theexports required less of its own currency.But it also made importing more expensive, since it required moredollars to pay for the imported item.

In the short run, a weakened currency may increase employment athome. But this is at best a short-run advantage. In the middle run,there are greater advantages to having aso-called strong currency. It means that the holder of such currencyhas a greater command on world wealth as measured in physicalstructures and products.

Over the middle run, reserve currencies are strong currencies andwant to remain strong. The strength of a reserve currency derives notonly from its command over world wealthbut from the political power it offers in the world-system. This is whythe world's reserve currency tends to be the currency of the world'shegemonic power, even if it is a declininghegemonic power. This is why the U.S. dollar is the world's reservecurrency.

So, why is Premier Wen "a little bit worried"? It is clearly becauseover the past few decades, the exchange rate of the U.S. dollar hasbeen fluctuating a great deal but on the wholeslowly declining. One of the main factors has been the incrediblyrising global debt of the U.S. government. There are two main ways inwhich the United States has been able tobalance its books. It prints money and it sells U.S. treasury bonds,primarily to other governments (so-called sovereign wealth funds).

It is no secret that in recent years the largest single buyer ofU.S. treasury bonds has been China. It is not the only one. Japan andSouth Korea, Saudi Arabia and Abu Dhabi, Indiaand Norway have all bought U.S. treasury bonds. But China today is thebiggest buyer, and given the present credit contraction, China is oneof the few likely buyers in theimmediate future.

The dilemma for China, as for others who have invested in U.S.treasury bonds, is that if the dollar declines further or if there issignificant inflation because of the printing ofmoney by the United States, their investment in treasury bonds may losethem money. On the other hand, what alternatives do China or the othershave?

The policy conclusion that China (and other buyers) are drawing issteady low-key divestment. They want it to be not so fast as to cause a"run on the bank" but not so slow as to bethe last one out the door - "before the stampede" as W. Joseph Stroupeentitled his article in the Asia Times.

China is reducing the amount of U.S. treasury bonds it is buying,and now prefers to buy shorter-term ones rather than longer-term ones.China is entering into "currency swaps"with other countries, such as Argentina, so that neither has to usedollars in their transactions. And China is calling for the creation ofan alternate reserve currency based on theSpecial Drawing Rights (SDRs) created by the International MonetaryFund, which are based on a basket of currencies. Russia has endorsedthis call.

The United States is not sure how to respond. When TreasurySecretary Timothy Geithner said that the U.S. government is "quiteopen" to China's proposal to increase the use ofSDRs, the dollar immediately went down in the currency market. SoGeithner then "clarified" what he had said. The dollar remained theworld's "dominant reserve currency" andthis is "likely to continue for a long period of time." He assertedthat "we will do what's necessary to make sure we're sustainingconfidence in our financial markets, and in theproductive capacity of this country and in our long-term fundamentals."

Is Geithner just whistling in the dark? More important, who believesthat what he says is plausible? The key to a currency's strength is notso-called fundamentals but "faith" in thereality of these fundamentals.

All the main actors are hoping there can be a soft landing, anorderly transition away from the U.S. dollar. No one wants toprecipitate a free fall, because no one is sure to come outahead if that happened. But if the U.S. stimulus turns out to be thelast of the bubbles, the dollar could very suddenly deflate in a mostchaotic fashion. The way you say "stampede"in French is "sauve-qui-peut," which translates literally as "let him save himself who can."

by Immanuel Wallerstein