A Global Free-For-All?
By Robert J. Samuelson
We are in a race between economic recovery and economic nationalism. At last week’s G20 summit, leading nations agreed to roughly $1 trillion of additional lending, mostly through the International Monetary Fund, to end the worldwide slump. But beneath the veil of consensus, countries are maneuvering to protect their economies and blame someone else for the crisis. Will the world economic order overcome these stresses or give way to a global free-for-all, characterized by rampant protectionism, nationalistic subsidies and preferences?
Emblematic of the tension is a recent proposal by Zhou Xiaochuan, governor of the People’s Bank of China (PBOC), to replace the dollar as the world’s major international currency. In a paper posted on the PBOC’s Web site, Zhou argued that the present crisis reflects “the inherent vulnerabilities and systemic risks” of the dollar-based global economy. The PBOC is China’s Federal Reserve, meaning that Zhou is no obscure bureaucrat or renegade academic. His critique is a significant event.
It may surprise Americans that, up to a point, his analysis is correct. The dollarized world economy developed huge potential instabilities—vast trade imbalances (American deficits, Asian surpluses) and massive, offsetting international money flows. But what Zhou omits from his analysis is revealing. To wit: China and others are implicated in the dollar system’s failings. By keeping their currencies artificially depressed—a way to aid exports—they abetted the very imbalances that they now criticize.
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