Devaluation Race

Robert Kurz

A hard currency with a high external value is generally regarded as a sign of economic superiority. So-called soft currencies, on the other hand, belong to losing states and candidates for relegation on the world market. However, this rule seems to have lost its credibility. Everywhere, people are afraid that their own currency could become too strong. In Switzerland, the central bank is intervening to push down the rising franc against the ailing euro. Central banks in Japan and other countries are pursuing the same policy against the dollar. Emerging economies such as Brazil are also desperately fighting the appreciation of their money. Conversely, people in the U.S. and the EU are anything but sad about the downward trend of their own currency, no longer so proud. Since the supposed end of the crisis, one can practically speak of a devaluation race.

This can be explained by the changed economic structure of crisis capitalism. The world economy now runs only on surreally inflated credit and the associated external economic relations. Surplus countries like Japan, China or the FRG are dependent on one-sided exports, deficit countries on the equally one-sided inflow of transnational money capital. Both have reached their limits. Now they are all trying to rehabilitate themselves at the expense of the others. Some want to save their export surpluses by hook or by crook; others, conversely, want to gain a larger export share themselves. However, the weaker a country’s currency, the cheaper and more competitive its exports become, while imports become more expensive. The devaluation race shows that the domestic economy is being written off everywhere and that the focus is now only on increasing exports.

In the euro zone, we have the particularly paradoxical situation that the deficit countries cannot devalue against the surplus country FRG, because both sides have a common currency. Moreover, the relatively weaker euro, precisely because of the southern European debt crisis, is additionally boosting German exports to the rest of the world. But this success story is short-lived because it is destroying its own preconditions. It is the German export roller that is flattening the euro. Even every textbook of economics knows that such a thing cannot work. A dissolution into the old national currencies would, of course, increase the external debts of the deficit countries immeasurably and at the same time cause the returned deutschmark to appreciate so drastically that the export machine would grind to a halt. The construction of the euro was obviously a suicide mission.

For countries with large export surpluses, revaluation is unproblematic for some time only if they also have a strong domestic market and/or an industrial monopoly. This was the case for Great Britain in the 19th century and the USA in the mid-20th century. Therefore, the currencies of these world powers were able to take over the function of world money. After the descent of the heavily indebted USA, there is no successor candidate anywhere in sight, least of all China. The overdue drastic revaluation of the Chinese currency would ruin large parts of the export industries there, too, and at the same time devalue its huge dollar foreign exchange reserves. No one can get down from their position anymore, but objectively, permanently unilateral exports to indebted countries are impossible. The devaluation race leads beyond the euro crisis into a world currency crisis.

Originally published in Neuen Deutschland on 11/14/2011

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