PART 1: Follies of fiddling with the yuan
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Consider currency, which pays a zero return. At the end of 2003, dollars held abroad was estimated to be about $320 billion, whereas only a trivial amount of foreign currency is held in the US. America's currency circulating abroad is about half the total US currency outstanding. That means that the US economy only makes up half of the dollar economy. The reason the US can do this is because of dollar hegemony, a phenomenon created by the dollar, a fiat currency no longer backed by specie value such as gold since the collapse of Bretton Woods in 1971, continuing to assume the status of a major reserve currency for international trade. Trade is now a game in which the US produces dollars by fiat, and the rest of the world produce goods and services fiat dollars can buy.
The dollar economy is in fact devouring not just non-dollar economies, but also the US economy. The dollar is like the rebellious computer HAL 9000 in Stanley Kubrick's 1968 film 2001: A Space Odyssey. Hal 9000 was programmed to believe that "this mission is too important for me to allow you to jeopardize it", and proceeded to kill everyone who tried to disconnect it. Dollar hegemony kills all, pushing down wages everywhere with no exceptions made for nationality. As Pogo used to say: "[We have met] The enemy, [and] it is us."
The issue is not whether Asian central banks will continue to have confidence in the dollar, but why Asian central banks should see their mandate as supporting the continuous expansion of the dollar economy at the expense of their own non-dollar economies. Why should Asian economies send real wealth in the form of goods to the US for foreign paper instead of selling their goods in their own economy? Without dollar hegemony, Asian economies can finance their own economic development with sovereign credit in their own currencies and not be addicted to export for fiat dollars. As for Americans, is it a good deal to exchange your job for lower prices at Wal-Mart?
Henry C.K. Liu/Asia Times 23.Oct.04
