Dollar, Euro…

Magzhan Kuanyshbayev

In times of globalization world is moving from one financial crisis to another. However, crisis we are facing today goes beyond usual frames. The problem is not only that IMF increased their forecast of world losses from 945 billions to 1.4 trillion dollars. Most important peculiarity is impossibility to predict what will happen in close future. Roots of economical model basis that have been working for several decades have been touched. One of them is world financial system that was based on American dollar which today is passing out.

How to stay alive in financial jungles
Authoritative specialists started to conceal American currency long ago; approximately since 1960s, however their forecasts did not come true. From economical canon’s point of view they were correct, difference of US world production (20% of world GDP) and consumption (round 40% of world GDP) will definitely lead to collapse. Such difference was supported by dollar emissions, which of course lead to USD inflation on world markets. But why this inflation did not take place before? Because up until the end of past century dollar zones in world economy were continuously expanding, this allowed increase in volumes without inflation.   
 For example from March 1985 till December 1987 dollar exchange rate decreased so much that there were rumours that it will die soon. However after that we saw collapse of USSR, which gave choking dollar zone new fresh breath. From the beginning of 1990s dollar compared to 34 major world currencies appreciated by 28%. From the period of 1995 to 2002 USD purchasing power increased by 50%. 
In a meanwhile only from 1980-1998 three fourth of IMF members of 133 countries suffered at least one serious crisis of financial system. Among these countries are: Argentine (3 crises), Benin, Bulgaria, Cameron, Central – African Republic, Chad, Chili, Congo, Estonia, Finland, Guinea, Jordan, Kuwait, Latvia, Lithuania, Macedonia, Malaysia, Mexico, Niger, Norway, Panama, Philippines, San-Tome and Principia, Senegal, Somali, South – African Republic, Spain, Sweden, Tanzania, Thailand, Turkey (2 crises), Uruguay, Venezuela, Russia. It is easy to notice that among given list there are few industrially developed countries, however this does not mean their perfection and invulnerability of their banking system; it is just that all clashes were absorbed by victim countries. This list does not include any countries with closed economies as well because their financial system to world bankers is closed. It is not surprising that West considers these countries as “totalitarian, undemocratic regimes” with all coming consequences: sanctions, discrimination and compulsion.       
Only last 5-7 years it was not possible to expand dollar zone anymore and problems started to occur. It is symbolic that even in 2000 such billionaires as Oren Buffet and George Sores transferred their money to Euro expecting collapse of dollar.     

Colossus on loamy legs
Today US is putting all expenses of their lifestyle on the other world. American economy is like “converging cage”, if one day it will collapse, the entire world will be doomed to catastrophe. Already in 1988 American government, its enterprises and consumers accumulated global debt of 11 400 billion dollars. This debt is impossible to cover producing only specific goods, even theoretically. States occurred to be victims of anfractuous increase of the debt and interest rates. Those believing in myth of US “inexhaustible viability” do not understand world economy functioning mechanisms.      
America is a core of world economy and financial system (dollar is world reserve currency, American citizens and corporations own 55% of all issues shares). In this situation according to Russian economist M. Khazin “USA is not capable of simultaneously taking responsibility for world financial system and fight with their economical crisis. In this case US Administration is facing a dilemma: either support dollar as the only world payable currency and continue ruining their economy, or forget about world financial system and save United States. Democrats even from times of Clinton support first scenario whereas republicans – second”.
In his turn HSBC Managing director Steven King is sure that “US is not planning to bind themselves with generally acceptable rules of financial world. This is so because everybody needs dollars that is why America could behave any way it wants without considering existing rules”. In other words we have to consider crisis situation in which potential source of world crisis will most likely come out of crisis in his personal interests. The question is what will Europe, Asia, BRIC and other countries do?   

Trodden path of Euro
It took forty years for Europe to introduce their currency. French President in 1970s Giscard d’Estaing and Western Germany Counselor Helmut Schmidt initiated creation of European Currency System. First they were constructing ECU system which was destroyed by US initiating “sterling crisis” in September 1992 in England. By the way it sucked 12 other countries as well. Many experts are confident that when sterling was excluded from European mechanism of regulating exchange rate was directed against ECU, or to be more exact against united European currency. US created unique system, which included financial and coercive instruments full meaning of which was ensuring that world capital would be held in USA. General principle was simple – business in America could go wrong but in surrounding world it should be even worse.
High dollar exchange rate in other countries is not related to reality since long ago, it stays only on the image of American currency as most reliable in the world. If this image will be altered and there will be reliable alternative then avalanche of undervalued dollars would overflow US economy. For now US is able to keep their reputation. For example war in Yugoslavia in 1999 altered Euro position, and many analytics consider that this was its only aim.
According to IMF dollar share of world currency reserves continuously decline. If by the end of June 2007 share of world reserves in dollar was 65% then in the end of September this share decreased to 63.8%. For the same period share of Euro as world reserve currency increased from 25.5 to 26.4%. In other words central banks diversified their currency reserves getting rid of dollars.
Slowly we are coming to a point when there will change of world reserve currency – dollar will give turn to “Euro”. Dollar itself as it happened to sterling before will just stay as national currency. “As a result of change there will be general decrease in volume of money in the world (because of dollar depreciation) and cite it in accordance with volume of goods”.
Russian economist A. Kobyakov who noticed support of Euro from the side of dollar underlined following: “There are many points that state protecting of Euro in the short term, America in reality is solving their middle term problem of financial stability”. Real danger of new global economical crisis pushed Americans to support united European currency. Steady, smooth and most importantly controllable appreciation of Euro is like controlled decrease of tension with dollars. It allows to at least a little bit level up huge differences in world economy discussed above. In worst case scenario this misbalance would lead to uncontrollable collapse of dollar and all American financial assets.
That is why weakening of Eurozone is categorical condition for US survival as the leader of modern world. This allows us to make short conclusion that local financial war between Euro and dollar is far from the end.  

Dollar infection and growth of Yuan
What about other world currencies, for example yen? Here following an example of US Federal Reserve System Japanese Bank started to pump world economy with their money since 1971. In other words printing press was used to finance their budgetary expenditures; moreover money has been printed almost for zero percentage or in reality for negative percent. This cannot go forever. In the light of weak dollar and weak yen we should reconsider weakness of Chinese Yuan.   
Many experts are confident that major force of Chinese export potential is not in cheap labor, or in high amount of hardworking population but in quite specific monetary policy. With official exchange rate of 8.28 Yuan per dollar purchasing power parity of Chinese and American money in reality is 2 Yuan per dollar. In other words Chinese at home could buy three times less products for Yuan than for the same amount of money converted to dollars in US. As the result export of Chinese goods to the world market has triple protection. This model is being financed with the help high level budget deficit equaling 12%. In their turn Beijing compensates deficit of government budget with the loans which are ensured by larger export over import and covers external debt by accumulating currency reserves. Quite an interesting puzzle: Chinese economy continues growing, while all the risks are carried by world financial system. US consider themselves to be worst victim of Beijing creative monetary politics.   
 Another well known economist Khazin gives us following picture: “Let’s imagine that tomorrow China will enter world financial market with securities nominated in Yuan. In order to purchase them there will be a need to buy Yuan for dollars and Euro. But Yuan is undervalued which states that even if these securities in formal would not bring revenue, in a year or two, holders could exchange received Yuan to dollars or Euro but in larger amount. In other words many investors that think on how to protect their capital could purchase securities nominated in Yuan. In this case they will not ask help in New York where on the Wall Street one could find owner of FRS and cheap money; they will go to Beijing or to Hong Kong. This is principal change of powers; soon everybody will understand that in order to be rich one has to look East rather than West”.  

Multicurrency world
In the world today we have de facto dollar zone. “Ecuador is not the only country that introduces American currency as their official payment instrument. Currently dollar as a national currency is used by Marshal Islands, Republic of Palau, Micronesia, British Virgin Islands and Panama. All these countries are under absolute political dependency on United States”. 
But there is high probability that deepening financial crisis will create several currency zones. There will be 3-5 currencies each repeating modern system in miniature. They will have one emission center and all other currencies in this zone will tie up their currencies to main currency. Direct currency exchanges from one zone to another will not be possible, only through major zone currencies, which most likely in inter zone exchanges will be tied up to the gold. Three major currencies would be (US dollar, Euro and Yuan) and four virtual ones (Islamic dinar, Afro, united currencies of Latin America and CIS). 
However creation of alternative currencies will face serious obstacles. First of all USA and EU would be against them in order to maintain as the leaders in global financial system. Secondly creation of currency zones is time demanding process, which has many painful compromises, sometimes even unachievable ones.

Lyndon LaRouche:
“Sooner we burry Euro the better. If dollar will collapse this will be an end of world financial system, if there will be collapse in Euro — nothing scare will take place. We must be realists”.
Military analytics V. Slipchenko is sure that in XXI century main weapon would be money. Money will be used for an attack and money will hit the targets.

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