The dollar devalued

Back in 1983 when I was working for another financial newspaper, the editor, who was actually a man of literature, called me and asked me to write a monthly article on business and economics books for the books page.

He said he wanted me to reassess an old economics book each month. The idea was not to review the book but to take a fresh look at the ideas it contained. He said the column would be called ‘Revaluation’.

That series forced me to read the books that the editor suggested, or rather, selected. The exercise helped in filling the large gaps in my nearly empty brain.

A colleague in this newspaper has suggested that I do the same thing now. So I am resurrecting that series. This new monthly column will be about a revaluation of old books on business and economics.

I expect it will once again demonstrate what Aristarchus or some other Greek eminence said, namely that there’s nothing new under the sun. But, as Paul Samuelson whom many regard as the father of modern mathematical economics was fond of writing at the end of his ‘Forewords’, bon aperitif.

The Doomed Dollar

It seems apposite that we see what was written about dollar dominance two decades ago. It’s especially relevant now because it seems Donald Trump’s former treasury secretary is thinking of doing a sort of Plaza Accord of 1985 once again. He wants America to devalue the dollar now just as it was devalued then.

Fortuitously, I found on my bookshelf a book called ‘The Dollar Crisis: Causes, Consequences, Cures’. It was published in 2003 and is by a financial analyst called Richard Duncan. As he was not a celebrity academic or economist, the book went mostly unnoticed. But he did predict the Thai crisis of 1993. And he did help sorting it out.

But celebrity or not, Duncan’s analysis is spot on. He said, 22 years ago, that the dollar was doomed. He did not say, however, how long it would take to die. Timing is always and inevitably a problem in economic forecasts. The British pound took 70 years after 1875 to stop being the global signature currency.

The reason, Duncan wrote then, is the American addiction to over-consumption which had led to its persistent trade deficits, which periodically destabilise the global economy. Basically, America wants others to pay for its domestic consumption bills while it pays for their defence and national security bills. That’s the unspoken agreement. Duncan’s thesis is fully supported by data even though theory itself is sufficient to prove it.

I would say that America is like the Mughal emperor in Delhi and all other countries are like his mansabdars or tribute payers. The problem with this relationship, as the Mughal emperors discovered to their cost, is that it’s not sustainable.

All those ‘isms’

Duncan believed that the debate about Keynesianism and monetarism was just a quibble between economists. The problem wasn’t which was the right policy but the global tendency to run up huge deficits even when they were not needed, economics-wise. Politics, of course, is a different matter.

The last two decades have proved him right. India, for example, has continued the free food policy of the Covid period. There are an unbelievable 800 million recipients! This is ‘Modism’.

Duncan also talked about the huge increase in global money supply and the certainty of deflation and inflation and a host of other dangers. So he suggested, in 2002, global policy coordination that the G20 talked about in 2008 and 2009 after the crises he had talked about six years previously. Raghuram Rajan came to these conclusions in 2006.

Most importantly, in view of the idea that the US should devalue the dollar, Duncan said it was not a matter of whether but when and by how much.

Duncan then talked about a whole lot of other things like global wage agreements, a global central bank, the resurrection of SDRs, the need to have globally acceptable banking standards and so on. The G20 is still grating on and on about these things.

That leads to the question: how practicable are the solutions? This is where the problem lies because arrangements cannot be entirely democratic. There are plenty of economists who have shown that, in the end, a ‘dictator’ is necessary.

Whether that dictatorship arises from a majority shareholding in a company or a parliamentary majority or because of status in a family — or even the editorship of a media platform — is irrelevant.

Cooperation has to be coercive and Duncan couldn’t bring himself to say that.

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