The US has, to use the phrase du jour, a great deal of “privilege” because the US dollar is the standard unit of trade, most significantly, trade in oil. If you get frozen out of the dollar, you get frozen out of a large part of the world economy. American sanctions can virtually destroy a country, as banks, even non-American banks, won’t do business with a country the Treasury department has forbidden doing business with.
Breaking that—moving to a multilateral world, or to a world where trading in Yuan is just as acceptable, goes a long way to breaking American power. In general, the Europeans will follow the US lead, so moving to the Euro provides no protection from America. But moving to the Yuan and the Ruble, does. Pricing large oil transaction in rubles also helps protect the Russian currency from large moves: if the ruble drops too much, people will go into it if you can buy oil in rubles, and the Russians are opening a futures operation as well, meaning traders can make that play, even if the US doesn’t like it.
Ian Welsh
Interesting POV.
ReplyDeleteWhat's the MMT take on this?
Btw, Paul Krugman usually dismisses the relevance of the dollar's position as the world's reserve currency.
Maybe Randy Wray or Scott Fulwiller or Bill Mitchell should post on this subject - thus helping to clarify MMT's stand on a much discussed and controversial issue.
Pricing large oil transaction in rubles also helps protect the Russian currency from large moves: if the ruble drops too much, people will go into it if you can buy oil in rubles, and the Russians are opening a futures operation as well, meaning traders can make that play, even if the US doesn’t like it.
ReplyDeleteThis at least gives me something I can get my mind around. I too would like to see what the "MMT view" is. I tend to think "dollar hegemony" will be with us for a while even if some of these scenarios come to fruition. I think this way because history shows how long the "Roman Empire" continued long after the historians said it was finished. "Romanism" was such a powerful cultural force that there were education reform movements even into the 19th century that wanted to keep the Classical education model but to exclude the Latin language. That way young men would become civil servants and would think more like Greek poets and philosophers and less like Roman bureaucrats! Brilliant!
Consider how the ROW hates "dollar hegemony" but why is it they can't get by without a "reserve currency," a sort of ersatz gold? I'll be sitting back with a big bag of popcorn waiting to see what "brilliant" ideas they come up with. I wonder if they can "top" the Euro.
MMTs position is that, if Russia or China or whomever is not prepared to run large and persistent trade deficits then the prospect of these other currencies replacing the dollar as the main reserve currency for any length of time is a joke.
ReplyDeleteEither that or, it happens, and in that case the world plunges into a certain state of prolonged conflict as the new monetary system, which would be a de-facto "fixed quantity" money system, guarantees that for every country that wins, some other countries must lose. Resources, capital (including and especially, money) become ripe for the taking. That spells conflict. It was the state of the world for 5000 years.
Anyway, Russia's acceptance of rubles for large oil transactions is a display of just how stupid Putin is or, how stupid his advisors are because Russia PEGS the ruble to the dollar. So in effect it's still a dollar transaction.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteDetour on the road to neoliberal globalization, which the US and West has attempted to impose since the dissolution of the USSR and Chin'a adoption of a market system.
ReplyDeleteThe US and West want to incorporate Russia and China into the system but still keep them isolated.
Another matter is India, the world's largest democracy, and China the world's largest socialist country. The comparison of their development is not in favor of the assumption that democracy and capitalism outperform single party control and market socialism in a developmental context.
In addition, Russia experiment with neoliberal capitalism was a disaster, and the recent performance of the UK and EZ have been poor under austerity.
Neoliberal globalization is not working out as Western elites expected and advertised.
This comment has been removed by the author.
ReplyDeleteIt has dawned on the Russian government that being a part of the American dollar system means that Russia is open to being looted by Western banks and corporations or by individuals financed by them, that the ruble is vulnerable to being driven down by speculators in the foreign exchange market and by capital outflows, and that dependence on the American international payments system exposes Russia to arbitrary sanctions imposed by the “exceptional and indispensable country.”
ReplyDeleteWhy it took the Russian government so long to realize that the dollar payments system puts countries under Washington’s thumb is puzzling. Perhaps the answer is the success of US Cold War propaganda. Cold war propaganda portrayed America as the shining light, the great observer of human rights, opponent of torture, upholder of liberty, defender of the downtrodden, lover of peace, and benefactor of the world. This image survived even as the US government prevented the rise of any representative governments in Latin America and while Washington has bombed half a dozen countries into rubble.
Russians emerging from communism naturally aligned with the propaganda image of “American freedom.” That the US and Europe were also corrupt and also had blood on their hands was overlooked... The truth came out when President of Italy Francesco Cossiga publicly revealed Operation Gladio, a false flag terrorist scheme run by the CIA and Italian Intelligence du...This is one of the most well-known false flag events in history, having resulted in extraordinary confessions by Italian intelligence.
Now that the Russian government understands that Russia must depart the dollar system in order to protect Russian sovereignty...
The rest:
http://goo.gl/qj3sza
Re: "a display of just how stupid Putin is or, how stupid his advisors are"
ReplyDeleteThis is the kind of gratuitous arrogance that alienates people from calmly considering MMT.
Putin is very obviously very far from "stupid", and it is doubtful his advisors are. At any rate, by this line of thought the US is therefore just as "stupid" in threatening sanctions for this "stupidity", as noted in the Zero Hedge report. In other words, not everyone sees economics according to MMT, and doubtless there are, in Russia's case, good historical reasons for their slowness in realizing the perfidy of the West and NATO. No, I am not necessarily "pro-Russian", nor, certainly, "pro-US'.
"The US and West want to incorporate Russia and China into the system but still keep them isolated."
ReplyDeleteTom, I agree, and your observation is characteristic of my main assertion about all of these people...
rsp,
Lisa,
ReplyDeleteYou seem to not understand the significance of a currency peg...
"by this line of thought the US is therefore just as "stupid"..."
Now you are starting to get it!
rsp,
Re: MMTs position is that, if Russia or China or whomever is not prepared to run large and persistent trade deficits ... That spells conflict. It was the state of the world for 5000 years
ReplyDelete==========
Mike, this was a very interesting post. Would you be good enough to write something that explained this more amply for us lay people? Or perhaps refer us to articles that would help us understand?
Naked Capitalism today has a great take on this subject:
ReplyDelete"... if you’re going to be a true reserve currency then you’re also going to have to run huge current account deficits, or there simply won’t be enough of your dough to go around. While the notion of 1.3 billion consumers going hog wild at the mall suggest such is possible in the future, with very low average incomes and entrenched savings habits, China has a long way to go before it’ll be chucking out enough yuan to satisfy that criteria."
http://www.nakedcapitalism.com/2014/04/reserve-currency-is-the-yuan-tearing-down-the-the-us-dollar.html