Ahí va el burro a la misma noria...: 2011

by Jessica Martínez

Historically, the currency of the mayor economy has played a significant role in the International Monetary System. This was true for the shekel, the daric, and the denarius, as it was for the sterling pound and the U.S. dollar.(1) However, the global economic arquitecture of our days does not resemble the ones of the past, nor even the times in which The Bretton Woods Conference anchored the U.S. dollar as the main currency for International Reserves (IRs). For that reason, the quest for a new main currency for IRs is in the air.

As can be seen in the following chart, today’s reality faces a multipolar economy in which emerging powers, growing at a greater pace, and with more political influence, have gained terrain, such as China and India. In the other hand, the United States faces a critical moment due to their high current account deficits, as shown in the second chart. This last aspect, along with the surpluses of countries like China and Germany, has contributed to the global imbalances(2), and the uncertainty that has widened the world economic crisis. In this scenario, the aim of the French Presidency of the G20 to reform the International Monetary System seems accurate and necessary, but also very challenging; challenging because it requires strong cooperation, compromise and effective implementation.

Graph 1. Real GDP growth of G20 members (annual percentage change) 2011. Elaborated on my own using data from the IMF Data Mapper. Data available in the following internet address: http://www.imf.org/external/datamapper/index.php

Graph 2. Current account balance (US dollars) 2011. Elaborated on my own using data from the IMF Data Mapper. Data available in the following internet address: http://www.imf.org/external/datamapper/index.php

Up to date, 61 percent of the world central banks IRs are held in US dollars -10 percent less than a decade ago. Most of the rest is allocated in euros, UK pounds, Japanese yen and SDRs, which are international reserve assets created by the International Monetary Fund (IMF) (3). As shown in graph 3, China has the highest amount of IRs -with two-thirds estimated to be invested in dollars. This is relevant because a high amount of IRs can facilitate the incidence of governments in exchange rates and therefore in creating certain stability.

Graph 3. International reserves (in millions of US dollars) 2009. Elaborated on my own using data from the IMF Data Mapper. Data available in the following internet address: http://www.imf.org/external/datamapper/index.php

Despite its actual scope, the primacy of the dollar has been questioned due to the uncertainty that the economic situation of the United States has generated. French President Nicolas Sarkozy (4) and Christine Lagarde, now head of the IMF, opened the debate to look for a more stable alternative to the US dollar that could inspire confidence and be widely accepted. As the crisis in Greece and other European Union countries worsens, and the pressure over the inaccurateness of a single European currency grows, the prospective of the euro as a leading currency is significantly narrowing.

The time for a SDRs system is also in the discussion, and Lagarde suggested its enlargement. Until now, its use had been limited, even when notable economists as Joseph Stiglitz signaled it as more desirable system once it had the adequate reforms. Still, the road is not clear for the SDR’s, but it will be quite interesting to see the position of the United States to this respect, as well as China’s, whose Yuan (renminbi) has caused great expectation among the analysts, and of course the one of the representatives of other countries, especially of those that have been struggling with the dollar’s recent high volatility.

At this last respect, it is interesting to analyze the recent behavior of the US dollar. According to data provided by the Wall Street Journal, this year the US dollar strengthened at least against 87 currencies, mostly African, which is why the participation of South Africa as member, and the African Union as guest will be relevant for the debate. The following table shows the most affected currencies, four of which belong to G20 members.

Table 1. Exchange rate X to U.S. dollar, 2011. Elaborated on my own using data from the IMF Data Mapper. Data available in: http://www.imf.org/external/datamapper/index.php

The interdependence of our world makes itself evident with the presented data, and it shows how the decisions of some countries and the behavior of their economies can affect others. Of course, there are degrees, and not all are equally distressed by global changes, but the information regarding exchange rates let us see that solutions will have to come from cooperative frameworks. As an example of this interconnectedness, the Mexican case is clarifying. This country is a G20 member, it has one of the largest GDPs in relation to Latin America and has been affected by the US dollar appreciation over the last year, especially in September.

Graph 4. Exchange rate Mexican peso to US dollar, 2011. Elaborated on my own using data from the IMF Data Mapper. Data available in the following internet address: http://www.imf.org/external/datamapper/index.php

This appreciation of the dollar can have several readings for Mexico. In part, it can be considered as undesirable for consumers of imported goods, for people who were planning to travel abroad, for producers who use intermediate imported goods and for people living in the border with the United States(5). As shown in graph 5, Mexico’s percentage of imported goods and services as a percentage of GDP is considerable. This means that there is a relevant amount of sectors affected by the US dollar strengthening and volatility which should be taken into account.

Graph 5. Imports of good and services as a percentage of GDP in Mexico. Elaborated on my own using data from the IMF Data Mapper. Data available in the following internet address: http://www.imf.org/external/datamapper/index.php

Nonetheless, for exporting companies, whose products become cheaper in relation to the foreign, and for national tourism this appreciation could be considered an advantage (6). Also, as can be shown in the following graph, the amount of exports of goods and services exceeds a quarter of the GDP which means that for certain sectors the appreciation of the dollar might be good news. The situation is complex, but what is important is to understand that many economies are tied to the behavior of the dollar and that stability must be a priority.

In conclusion, the current account deficit of the United States, the surpluses of emerging economies, and the European crisis, account for a new configuration of the world; one in which every country is interconnected to the others and in which certainty and stability are key. The US dollar continues to be the leading currency for IRs, but the recent fluctuations of its currency affected various countries all over the world, making visible the power it has to unstable the whole economic system. For this reason, the discussion of a new IRs –namely supranational- or a wider array of them should be taken into account, and the perfect place to do it will be the International G20 Summit to be held in Cannes.

Notes:
(1) Robert Mundell, “The International Monetary System in the 21st Century: Could Gold Make a Comeback?”, Lecture delivered at St. Vincent College, Pennsylvania, 1997. Available in the following internet address: http://www.columbia.edu/~ram15/LBE.htm (website visited on September 29th 2011).

(2) Global Imbalances in Midstream. Document available in the following internet address: http://www.imf.org/external/pubs/ft/spn/2009/spn0929.pdf

(3) Global Finance: International reserves by country, 2010. Available in the following internet address: http://www.gfmag.com/tools/global-database/economic-data/10212-international-reserves-by-country-2010-ranking.html#axzz1ZNyq3mlg

(4) “We have to update the international monetary system for the 21st century,” Sarkozy said at the G-20 summit in Seoul. At the WEF in Davos, he said: “We can’t have on one hand a multipolar world and on the other hand a single reserve currency”.

(5) Gerardo Ezquivel, ¿Qué pasa con el dólar?, Animal político, 2011. Article available in the following internet address: http://www.animalpolitico.com/blogueros-el-vaso-medio-vacio/2011/09/26/%C2%BFque-pasa-con-el-dolar/

(6) Ezquivel, op cit.

Francamente venir a D.C. no era lo que más soñaba, pero poco a poco he ido descubriendo nuevas facetas de esta ciudad. Aún no me atrevo a llamarla bella, porque no la percibo así, sino más bien, estética, ordenada, limpia y bien diseñada. Pero bueno, les cuento porque me ha ido ganando.

Para empezar, en la mañana antes de ir a trabajar fui al Centro McClaendon, una organización que trabaja con personas que no tienen hogar (homeless) y que tienen problemas mentales o adicciones. La razón por la cual llegué a este lugar fue porque después de dos semanas de trabajo y de mucha "levedad" me di cuenta de que mi estancia aquí tendría poco sentido personal si no dedicaba horas de mi vida a algún tipo de servicio social. Fue por ello que decidí buscar una organización que me permitiera trabajar con personas sin hogar, que aquí en DC es un problema muy evidente. Aún estoy a la espera de una respuesta por parte del director del Centro y espero que sea positiva. Ya les contaré.

Las fotos que comparto abajo son fragmentos de una manta hecha por varias de las personas que han sido atendidas en el Centro. Los mensajes se me hicieron particularmente lindos y sin duda alegraron mi mañana y reforzaron mi interés en trabajar ahí. Bien decía el himno de mi primaria que el que no vive para servir no sirve para vivir. Today, I am thankful for everything they wrote because unintendedly they gave me the necessary joy to view my day as a whole new and beautiful opportunity.

Y bueno, la parte más refrescante del día fue la tarde, cuando gracias a Montse Miramontes tuve mi primer travesía en bici del trabajo a la casa! El paseo fue genial, simplemente genial. Y mientras manejaba rumbo a casa con un clima increíblemente agradable, montones de flores rosas adornando la avenida M, con tacones, pantalón de vestir y una mochila tamaño cahuama, pensaba que mi calidad de vida había aumentado exponencialmente. D.C. es sin duda una de las ciudades más amistosas con los peatones y los ciclistas que conozco y, definitivamente, digna de tomar en cuenta cuando se piensa en medios de transporte alternativos para los ciudadanos.

La primera foto es de la estación Rosslyn, que es la más cercana a mi casa. Como ven, las bicis son casi iguales a las que hay en un par de colonias de la Ciudad de México, la diferencia en D.C. es que la ciudad cuenta con infraestructura que abarca casi la totalidad de la Ciudad y el área metropolitana. Ya les contaré mañana cómo me fue para llegar al trabajo... veremos si es igual de fácil que el regreso...