Peter Gowan writes:
***** ...The international monetary system established at Bretton Woods was always conditionally and partially implemented and although it did begin with the US accepting a discipline upon its dollar policy through the gold link, when that discipline was perceived by the US government in the 1970s to be detrimental to US interests it was simply scrapped through unilateral action by the US against opposition from all other core states and from then on the international monetary system became a pure dollar standard, thus manipulable by the US government as it wished.
This dollar standard international monetary system has enabled the US to escape from the usual balance of payments constraints upon a state's economic management and also enabled the US to escape the consequences of large swings in dollar exchange rates with other currencies, such as the Dmark and the Yen. It has thus been able to swing the dollar up or down against other currencies in line with purely US economic or political objectives.
John Williamson, an insider in the diplomacy that led to the US's imposition of the dollar standard in the mid-1970s has expressed what was at stake clearly: "The central political fact is that a dollar standard places the direction of world monetary policy in the hands of a single country, which thereby acquires great influence over the economic destiny of others. It is one thing to sacrifice sovereignty in the interests of interdependence; it is quite another when the relationship is one way. The difference is that between the EEC and a colonial empire.....The fact is that acceptance of a dollar standard necessarily implies a degree of asymmetry in power which, although it actually existed in the early post-war years, had vanished by the time that the world found itself sliding to a reluctant dollar standard" [6]....
...The potency of the monetary-financial levers has been equally striking, with the US government demonstrating repeatedly that through the threat or actual use of US control over the international monetary and financial regime, it can profoundly negatively affect the economic outcomes of allied economies, disrupting their macro-economic strategies: what I have described elsewhere as the Dollar-Wall Street Regime constructed in the 1970s and early 1980s [9]. Examples of such strategies would include monetary pressure on the French economy to defeat the Keynesian growth strategy of the early 1980s and the manipulation of the Dollar-Yen exchange rate to exert intense pressure on Japan's trade position in order to gain an opening of Japanese finance to US financial operators in the 1980s and to gain various kinds of managed trade agreements with Japan in the 1990s. the linked to the security pact tactic, the US in the 1980s and 1990s added the use of economic statecraft in the monetary and financial field to encourage states to 'deal' with it on restructuring its approaches to economic policy and organisation.
Taken together, these levers have enabled the US to 'internalise' the international political economy as Arrighi puts it, to a considerable extent or, to express the same idea in another way, to make significant inroads into the capacity of its allies to manage their own internal affairs autonomously....
...A US World-Empire project would have to combine the military-political dimension with continued dominance over international monetary and financial relations. Both Japan and Western Europe have taken steps, in different ways, to protect themselves from the US use of economic statecraft in this field to exert pressure on the rest of the core.
In the West European case, this has been attempted through the European Monetary System and its successor, the Euro. The final implementation of the Euro in July 2002 will supply a very substantial shield for Western Europe, particularly when it is combined with an integrated deep and liquid EU financial system. The strength of this shield will be all the greater in that, despite all the talk of economic globalisation, the European economy is becoming an increasingly closed one, less and less reliant upon transatlantic trade.
As far as Japan is concerned, it has not made any serious attempt to turn the Yen into a significant international reserve currency or to construct a yen bloc as a shield against US economic statecraft. This would be too risky a step, threatening heavy retaliation. Instead the Japanese government has used its enormous financial power to build up very large positions in the US financial market, especially in the Treasury bond markets. Such is the size of these Japanese holdings in the dollar area that their liquidation could deliver a substantial shock to the dollar. In other words the Japanese government has acquired leverage over US dollar policy....
<http://www.unl.ac.uk/ukrainecentre/WSS/ws-9.html> *****
What's interesting is that the currency of the world's largest debtor nation (USA) depends upon the world's largest debtor government (Japan).
***** US dollar's "virtuous circle" may be turning vicious By Nick Beams 18 June 2002
...Warning that the US dollar was "very vulnerable" to a change in sentiment about American assets, the Economist of June 14 noted that there had been a shift in the flow of funds to the US over the past year. "Foreign direct investment financed 91 percent of America's current-account deficit in 1999. By last year, that had fallen to 43 percent, having been supplanted by more fickle capital flows. Foreigners own no less than two-fifths of American Treasury bonds, a quarter of corporate bonds and 13 percent of American equities."
Long-time Australian economics analyst Max Walsh commented in an article in the Bulletin magazine of June 4 that while the US dollar was anywhere between 15 and 30 percent overvalued, this did not set the limits to the potential fall because in the current era of large capital flows, exchange rate movements developed a momentum that fed upon itself.
According to Walsh, foreign investors hold US corporate bonds with a value of more than $1.3 trillion, Treasury bonds of more than $600 billion on top of $1.5 trillion in corporate equities. "A high proportion of this capital is footloose, ready to take off if there is a more promising investment at hand, or if the value of US investment looks like contracting," he wrote.
Some commentators have dismissed the prospect of a capital outflow from the US on the grounds that investment opportunities are no better in the rest of the world. That may well be the case provided the value of the dollar is sustained. However, if it starts to rapidly lose value, then investments may well be liquidated, not because there are better opportunities elsewhere, but in order to try to avoid massive exchange rate losses they would sustain by continuing to hold dollar-denominated assets.
<http://www.wsws.org/articles/2002/jun2002/doll-j18.shtml> ***** -- Yoshie
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