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The dollar is our currency, but it’s your problem: Paola Subacchi

Paola Subacchi: The People’s Bank of China wants to keep the renminbi exchange rate stable and in line with the government’s policy objectives. Since August 2015, when tumbling Chinese stock prices raised the specter of financial instability, that has meant, first and foremost, preventing excessive capital outflows.

As growth slows and US tariffs take their toll, preserving financial stability by propping up the renminbi becomes an even trickier balancing act. But the truth is that China shouldn’t be performing it at all; indeed, the PBOC should have abandoned the practice of exchange-rate management years ago.

PS: With mounting mistrust of the United States accelerating the drive for international monetary reform, you present a couple of possible approaches: “expanding the international role of other currencies” or creating an “alternate monetary system, centered on the needs of developing countries.” How likely is reform, and what form would it be most likely to take?

Subacchi: At the 1971 G10 meeting in Rome, then-US Treasury Secretary John Connally proclaimed, “The dollar is our currency, but it’s your problem.” That statement unfortunately remains true to this day.

As the Trump administration continues to weaponize the dollar, it is clearer than ever that the world should be moving toward a multi-currency global monetary system, with the renminbi, in particular, playing a much larger role in international trade and finance. Yet comprehensive reform is unlikely to happen any time soon, not least because of China’s struggles with slower economic growth and financial imbalances.

PS: You’ve suggested that neoliberalism is actually a form of social engineering, in the sense that those societies that embraced free-market ideology “have become increasingly divided in terms of economic power, influence, education, and health.” And, judging by many of these societies’ politics today, there has been considerable buyer’s remorse among voters. Which policies would do the most to address their grievances?

Subacchi: The failures of neoliberalism, from sharp inequality to environmental degradation, confront us every day. In my forthcoming book The Price of Free Money, I argue that, after the 2008 crisis, the world’s major mistake was to reset the system, rather than overhaul it.

But it may not be too late for significant reform. The key to success would be a kind of “New Deal” that balances traditional economic objectives – growth and wealth creation – with a range of other priorities, including strong social safety nets, equitable labor markets, fair distribution of resources, environmental sustainability, and community openness.

PS: Defying warnings from its European and American allies, as well as from many economists, including you, Italy became the first Western power to sign onto China’s Belt and Road Initiative last March. Why was that a mistake, and what steps should Italy, as the “junior partner” in the arrangement, take to protect its interests?

Subacchi: Italy’s decision to sign onto the BRI was an act of defiance against the European Union and the G7, conceived by the populist coalition government, comprising the left-wing Five Star Movement (M5S) and the nationalist League party. But that coalition subsequently collapsed, and its successor is a more EU-friendly iteration, involving M5S and the center-left Democratic Party.

Italy’s change of government, together with China’s economic slowdown, has shifted implementation of the memorandum of understanding to the back burner, offering Italy something of a temporary reprieve. When Italy does have to deal with China, its best option is to go through the 2016 EU strategy on China, which emphasizes “reciprocity, a level playing field, and fair competition across all areas of cooperation.”

PS: Many of Trump’s critics, at home and abroad, share his view of China as an economic and strategic threat. Does that make conflict inevitable?

Subacchi: No, even though it may appear that way at times. While steps have been made along the path toward conflict, they have been intermittent. Reversing or changing course remains entirely possible. In my view, the best approach – for the US, China, and the rest of the world – is greater engagement between the world’s two largest economies.

PS: You praised former International Monetary Fund Managing Director Christine Lagarde for making the IMF “a more open, more inclusive, and more diverse organization” that is “more willing to listen to civil society.” What broad priorities should Lagarde’s successor, Kristalina Georgieva, bring to bear during her tenure?

Subacchi: Unlike Lagarde, Georgieva is a development economist, so I expect her to align the IMF’s agenda and approach more closely with that of the World Bank, deepening the focus – which, to be sure, Lagarde introduced – on issues like poverty, inequality, corruption, climate change, and environmental degradation. Georgieva will also have to address questions about IMF governance – and, indeed, the Fund’s relevance – at a time when the US is withdrawing from global leadership and multilateralism is under severe strain.

PS: You participated in last year’s People’s Vote March demanding a vote on the United Kingdom’s Brexit deal – a demonstration that was repeated last month. If a second Brexit referendum were held, how should it be framed to avoid the pitfalls of the first one?

Subacchi: The People’s Vote March was a fantastic display of tolerance, mutual respect, good humor, and vision for the future – values that the UK must preserve. Whereas the first referendum simply asked whether voters wanted to leave or remain, a second one should allow them to decide whether the specific Brexit deal that the UK and the EU have reached fulfills their desires and expectations for the future bilateral relationship. The alternative should be to remain in the EU.

I do wonder, however, what the social consequences of a second referendum might be. Would it help to heal the deep divisions that have beset the UK, or would it produce even greater fragmentation?

PS: As part of a dual-nationality family living in the UK, how has Brexit affected you and your perception of the country?

Subacchi: I feel less welcome and somehow deprived of the right to determine my future plans. I feel sad every time, upon arrival in the UK, I use the EU passport lane, thinking that it might be the last time (even if, with all of the Brexit extensions, it has begun to feel a bit like the 1993 movie Groundhog Day).

Published Date: Tuesday, November 12th, 2019 | 05:50 PM

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