Chávez and friends make up their own currency

[Neu Leonstein]

http://english.aljazeera.net/news/ameri ... 48516.html
http://www.news.com.au/story/0,27574,26 ... 09,00.html

LEFTIST Latin American leaders agreed today on the creation of a regional currency, the Sucre, aimed at scaling back the use of the US dollar.

Nine countries of ALBA, a leftist bloc conceived by Venezuelan President Hugo Chavez, met in Bolivia where they vowed to press ahead with a new currency for intra-regional trade to replace the US dollar.

"The document is approved,'' said Bolivia's President Evo Morales, who is hosting the summit.

The new currency, dubbed the Sucre, would be rolled out beginning in 2010 in a non-paper form.

That move echoes the European Union's introduction of the euro precursor, the ECU, an account unit designed to tie down stable exchange rates between member states before the national currencies were scraped.

ALBA's member states are Venezuela, Bolivia, Cuba, Ecuador, Nicaragua, Honduras, Dominica, Saint Vincent and Antigua and Barbuda.

[...]

Given that basically none of these countries have done a good job keeping inflation under control, and all of them are struggling to deal with the fall-out of the global recession which made their structural weaknesses evident to voters, it seems to me a rather silly idea to launch into a project like this. Currencies, on a macro scale just like on a micro scale, are about trust, and capital controls will be more difficult to use if all of these countries operate with both their own and this new currency. If any of the countries blinks, that leaves the entire system open to the possibility of a sudden collapse in the currency. Similarly, as the UK found in 1992, when there are differences in the economic situation of the members of a currency union like this one, maintaining the union can be quite painful and might simply not be worth it.

In short, it takes credibility and discipline. ALBA has neither. I predict failure.

[Apathetic Auteurs]

I get the feeling it's little more than an another attempt by Chavez to annoy the US, but meh. It's worth a shot, and I wish them luck. And if it fails it's not going to affect me.

[Lacadaemon]

This is made of fail. All of the member nations will cheat. Anyway a single currency is sort of impossible under those circumstances even if the countries in question were credible.

And given the propensity of Venezuela to take things that don't belong to it, nobody will want to have anything to do with it. Stupid Hilton.

Fuck, the Eurozone can barely pull it off. And those are really countries with a proper common goal. (At some point Germany will have to start mailing money to Ireland for example).

[South Lorenya]

Go right ahead; the US and the EU can combine into their own megacurrency which makes not only the sucre but every other currency in the world a relic of the past.

Sereiously, though, there are forty or so currencies pegged to either the US dollar or the euro -- if the US and EU combined their currencies, that number would only go up.

CLARIFICATION: So far, the US has a GDP of $14 trillion, and the eurozone has a GDP of $13.5 trillion. Considering that Japan is a distant third at $5 trillion, which should give you an idea how dominant the combined currency is, especially since the global GDP is (depending on the figures you use) between $54 trillion and $70 trillion!

[Allanea]

Why do you people think having less different currencies is better?

[Lacadaemon]

Go right ahead; the US and the EU can combine into their own megacurrency which makes not only the sucre but every other currency in the world a relic of the past.

Sereiously, though, there are forty or so currencies pegged to either the US dollar or the euro -- if the US and EU combined their currencies, that number would only go up.

CLARIFICATION: So far, the US has a GDP of $14 trillion, and the eurozone has a GDP of $13.5 trillion. Considering that Japan is a distant third at $5 trillion, which should give you an idea how dominant the combined currency is, especially since the global GDP is (depending on the figures you use) between $54 trillion and $70 trillion!

Yah. That's even more absurd than the sucre. It just doesn't work that way.

[Lacadaemon]

Why do you people think having less different currencies is better?

I don't as it happens. I see lots of pitfalls in the idea of these single currencies. Even under ideal circumstances (the US) it hasn't worked out all that well. I mean, it has been fine if you are in Cali or NY (up until recently), but it surely has cocked up large parts of the rust belt.

[Allanea]

Currencies are not TTGL mecha, you can't just 'combine' them.

[Grays Harbor]

This won't last. Too many egos involved for one thing, and it is being done for a not so economically sound reason, i.e. "we want to tweak the US", as opposed to "We have strong economies and will benefit from this". Many of the nations involved also have a significant history of changing their own currencies periodically because of runaway inflation.

This will not end well

[Risottia]

That move echoes the European Union's introduction of the euro precursor, the ECU, an account unit designed to tie down stable exchange rates between member states before the national currencies were scraped.

Well, actually could be an idea. Those countries' currencies would benefit from a bit of stability -

If any of the countries blinks, that leaves the entire system open to the possibility of a sudden collapse in the currency. Similarly, as the UK found in 1992, when there are differences in the economic situation of the members of a currency union like this one, maintaining the union can be quite painful and might simply not be worth it.

Wrong example here, since the UK, being outside the Euro, is suffering the brunt of the crisis a lot more than the Eurozone countries do.
In just one year, the Pound/Euro dropped from 1.5 to 1.1 .

In short, it takes credibility and discipline. ALBA has neither. I predict failure.

Good point... but I wouldn't be so pessimistic, given that some of those countries have good exports. Could be a turning point.

[Allanea]

In just one year, the Pound/Euro dropped from 1.5 to 1.1 .

I'd say this has to do more with them printing lots of money - more than the US, for example - to deal with the crisis.

[Lacadaemon]

Wrong example here, since the UK, being outside the Euro, is suffering the brunt of the crisis a lot more than the Eurozone countries do.
In just one year, the Pound/Euro dropped from 1.5 to 1.1 .

Except that's the wrong way to look at it. What a countries currency is worth vis-a-vis another really isn't very informative. It isn't a pissing match. There is no doubt that the UK has benefited from being able to drop it's rates lower and faster than the Eurozone and devalue it's currency with respect to others. Certainly the UK economy is performing better than Spain's or Ireland's right now. And I would imagine both Spain and Ireland would be doing exactly what the UK is right now if they had the option.

[Lunatic Goofballs]

Why do you people think having less different currencies is better?

I do, but lot like this. These countries have demonstrated no ability to handle their own economies, nevermind eachother's. I suspect this will end with accusations and maybe even violence.

[Risottia]

Except that's the wrong way to look at it. What a countries currency is worth vis-a-vis another really isn't very informative.

Actually rising inflation quickly isn't very nice, generally. Expecially for consumers (and also imports if the country has a lot of industries).
Well, my two cents actually, but here in Italy we're still paying the overinflation of the '80s - engineered to have better exports, but the backlashes on the buying power of wage workers have been terrible, and it has ruined the internal market.

[GetBert]

Should make the cocaine trade easier.

[Lacadaemon]

Should make the cocaine trade easier.

Cocaine, like oil, is a dollar commodity. Though maybe if they get really pissed off they'll start trading it in Euros.

[Lacadaemon]

Actually rising inflation quickly isn't very nice, generally. Expecially for consumers (and also imports if the country has a lot of industries).
Well, my two cents actually, but here in Italy we're still paying the overinflation of the '80s - engineered to have better exports, but the backlashes on the buying power of wage workers have been terrible, and it has ruined the internal market.

This would be a good point, if there were any inflation in the UK. But right now everything is still below the inflation target. In other words Merv King can't actually make money loose enough.

And if you look at the UK, which has been running large twin deficits (government and trade), it really does need to adjust its currency to facilitate a better balance of trade.

Look I've no doubt that, in the long run, what the UK is doing is suicidal because it refuses to address structural government overspending and chronic problems with it's financial services industry. But you can't point to the lower pound as a metric of failure. If anything it represents a small success insofar as it has kept unemployment lower than it would have been had the UK been a Eurozone country and has actually helped slow (halt?) economic contraction.

[Risottia]

But you can't point to the lower pound as a metric of failure.

Granted... though losing so much value in such a short time isn't exactly a good thing.

Anyway, back to the sucre: maybe having stable currencies will force those countries to solve their structural issues, instead of using devaluation and inflation.

[Neu Leonstein]

Wrong example here, since the UK, being outside the Euro, is suffering the brunt of the crisis a lot more than the Eurozone countries do.
In just one year, the Pound/Euro dropped from 1.5 to 1.1 .

I was talking about 1992. Back then Germany had just merged with the East, and was spending ridiculous amounts of money on rebuilding. The Bundesbank wasn't about to have inflation go up, so they raised interest rates to some, relatively, astronomic level. That left other European economies in the ECM with a choice: keep the currency pegs stable and also increase interest rates, or abandon the peg and do their own thing.

France went with the former, raised rates far above what was appropriate for them and had a recession. The UK said they would too, but it wasn't a credible commitment. George Soros and others called them on it, bet against the peg and won. The BoE abandoned the ECM and went to some sort of inflation targeting setup shortly after. In short, a currency peg is an external commitment which takes away your flexibility to do domestic policy. Do you really think ALBA-type countries have the discipline to pull that off?

Good point... but I wouldn't be so pessimistic, given that some of those countries have good exports. Could be a turning point.

They have good exports. But so does Congo.

It's the quality of governance that counts. And there is yet to be a single good thing any of these Bolivarians have done as far as macroeconomic management is concerned.

Anyway, back to the sucre: maybe having stable currencies will force those countries to solve their structural issues, instead of using devaluation and inflation.

Solving their structural issues would require abandoning Bolivarianism. What's going to happen instead is that these countries will end up double-crossing each other wherever possible in order to keep themselves above water.

[Charlotte Ryberg]

The worrying possibility with a single currency is that the inflation rate is the same for all member states, so if it descends into hyperinflation, all member states will go with it. What makes the diversity of currencies unique is that if, as we have seen before, one currency fails then others are unlikely to follow suit unless very close trading agreements are in place.

[Waterlow]

Actually rising inflation quickly isn't very nice, generally. Expecially for consumers (and also imports if the country has a lot of industries).
Well, my two cents actually, but here in Italy we're still paying the overinflation of the '80s - engineered to have better exports, but the backlashes on the buying power of wage workers have been terrible, and it has ruined the internal market.

This would be a good point, if there were any inflation in the UK. But right now everything is still below the inflation target. In other words Merv King can't actually make money loose enough.

And if you look at the UK, which has been running large twin deficits (government and trade), it really does need to adjust its currency to facilitate a better balance of trade.

Look I've no doubt that, in the long run, what the UK is doing is suicidal because it refuses to address structural government overspending and chronic problems with it's financial services industry. But you can't point to the lower pound as a metric of failure. If anything it represents a small success insofar as it has kept unemployment lower than it would have been had the UK been a Eurozone country and has actually helped slow (halt?) economic contraction.

Yes. It amazes me that many UK Europhiles are trying to argue that the financial crisis shows that we should be in the eurozone when we'd have been proper fucked had we not had full independence with respect to manipulating interest rates.

As for Chavez and co... These guys have been such a bitter disappointment for deluded idealists like me. I predict swift, farcical failure.

[NotnotgnimmiJymmiJ]

This can only end in tears.

[Land of greed]

I predict disaster, followed by blaming the failure on the US.

[Crabulonia]

I predict disaster, followed by blaming the failure on the US.

Well scapegoats are effective ways of putitng problems on someone elses shoulders. The US has some pretty mighty shoulders.

[Grays Harbor]

I predict disaster, followed by blaming the failure on the US.

Of course Chavez will blame the US. In the end, though, Chavez is really nothing more than a yappy little dog with delusions of being a Rotweiler.