Dangerous Powers Drive the Dollar

November 14, 2007
in Category: Articles, Economics
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Dangerous Powers Drive the Dollar

I handed the cashier a bill that said ‘50,000’ on it.

She laughed. “That’s not enough!”

I handed her one that said ‘5’.

“Oh God, I can’t change that for you,” she moaned. “Haven’t you got anything smaller?”

I held out my billfold and she took what she liked.

This was Brazil, 1990. The value of their monetary currency was nose-diving amidst 5,000 percent inflation that year alone. There were now three different currencies circulating.

During times of plunging currency value, instead of forcing citizens to push wheelbarrows of bills and count out $4.7 million to board the bus, that’s what governments do. They issue a new “dollar” equal to thousands of the old ones. So in Brazil, Cruzeiros were being replaced by Cruzados. But the problems kept escalating, and before the transition completed, Cruzados Novos were created and declared to be worth 1,000 Cruzados or 1,000,000 Cruzeiros.

A passing tourist, I was helpless trying to sort out costs in all my different-coloured bills.

But that was nothing compared to the helplessness Brazil’s citizens were feeling, as their economy was undermined by international currency markets many of them barely understood.

In a much smaller way, we’re often similarly victimized by our own currency’s shifting value.

Even our dollar’s relatively miniscule fluctuations aren’t insignificant. At parity with the U.S. dollar, Canadian NHL teams will save millions this year in U.S. dollar player salaries. Cross-border shopping by Canadians is climbing, and Canadian tourism, forestry and exports are taking hits because people from other countries can’t afford to buy here as easily.

Conversely, after valuation drops, we lost NHL teams, Hollywood North boomed, and rising import prices caused inflation.

Our media reverberates with these collective shudders. But I wish such events would prompt less self-centred bleating and more in-depth discussions about the powerful international currency trade. Because as long as we don’t understand FOREX and how it can rip nations asunder, we’re merely misleading ourselves when we opine on economic realities.

The international foreign exchange in currencies, called FOREX, is the single biggest economic force in the world. How big? At $1.9 trillion U.S. daily, FOREX trades over six times as much value as all the world’s stock exchanges combined.

Who steers that market? Unlike stock markets, FOREX has no physical location, no central exchange, and no independent governing body. And apart from billionaires, only a tiny percentage of players are individual investors. FOREX is completely controlled by corporations, financial institutions and governments, wheeling and dealing and ultimately deciding the fates of nations.

And while dealings are sometimes complex, the basic driver is simple: These traders are angling to increase their wealth.

With that in mind, go back to Brazil. Ever savoured that cheap beer, or bags of pineapples as inexpensive as BC sawdust? And if you’ve travelled much, you’ve noticed Canadian dollars go surprisingly far in many African, South American and Asian countries. It’s fun to feel flush!

People who run our financial institutions and corporations feel the same way about all that cheap labour, land and resources in those countries. And unlike you and me, they’re in a position to keep those things cheap. They can use FOREX to keep their own primary currencies strong and others’ currencies weak.

For example, they could loan Brazil money to “help” it out of its economic crisis, but insist on that loan being paid back not in Cruzeiros or Cruzados, but U.S. dollars. This is actually common practice for the International Monetary Fund and World Bank, both dominated by western corporate interests. Soon, the Brazilian government must start buying massive amounts of U.S. dollars for its loan payments, so the value of U.S. dollars rises while the Cruzeiros’ value drops even further. Eventually, western corporations with U.S. dollars at hand can buy Brazil’s labour, companies and resources even more cheaply than before.

Of course, voluminous tomes would be required to explain every subtle, day-to-day influence on market-driven currency values, like imports/exports, interest rates, productivity, investor confidence and wars. Nevertheless, like wealth and poverty themselves, a self-perpetuating, fundamental power disparity dominates.

Basically, the currencies of the world’s richest nations are relatively so much stronger, our financial institutions can buy or break many weaker nations’ currencies and economies in toto, exploit them, and leave them in even bigger, currency-plummeting, inflationary messes. And that’s often exactly what we do, lately inspiring Venezuela, Argentina and Brazil, for instance, to try legislating currency exchange controls while preaching complete splits from the IMF.

Interestingly, China has also imposed currency controls. However, it’s deliberately chosen to keep the yuan valued extremely low, so Chinese labour and exports remain cheap to western shoppers and corporations. Now, the U.S., with its ballooning trade deficit and steady loss of jobs, has begun pressuring China to unleash its currency into FOREX.

This is why it’s so annoying to see commentators promoting “globalization” and “free trade” while, either naively or nefariously, never even mentioning western corporate-government dominance of currency trading. After all, no matter how much market deregulating occurs, a steep difference in currency values between two countries means their economies will never be on a level playing field. Canadian workers can’t ever compete fairly against Haitians paid in gourdes, and Haitians will never have Canadian-dollar international purchasing power.

So instead of self-absorbed cheering or griping helplessly about dollar tremors, we desperately need collective discussion about regaining control of these undemocratic financial forces that ultimately rule our economies.

2 comments on “Dangerous Powers Drive the Dollar”

  1. I so appreciate your article on currency trading. I am reading Naomi Klein’s “Shock Doctrine”, and thinking a lot about the current corporatist agenda that is running our world. Huge greed by a few individuals and corporations will continue to cause unspeakable suffering for hundreds of millions of people until enough of us develop the understanding and the will to fight what is happening. Your article is important. Thank you.

  2. rob says:

    Thanks for your comments, Frances. I haven’t read Klein’s book yet, but I heard her interviewed recently and was particularly intrigued by how she was drawing connections between the political/economic power and oppression and our oppressive history towards those with serious psychological problems. It always seems to me that the way things are playing out socially are intimately connected to people’s personal levels of “understanding” about their situations. Did she develop that idea much in the book?

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