The latest issue of Forbes magazine features Steve Forbes‘ analysis of the impact of a sound currency on economic growth.
DEVELOPING COUNTRIES, such as Brazil, Indonesia, India and South Africa, have made clear their ambition to grow into global economic powerhouses. Turkey’s government has openly declared its goal to become one of the top 10 economies by 2023 (it ranks 18th today).
But all of these nations have overlooked a crucial requirement of economic greatness: a stable currency. Investors and entrepreneurs yearn for sound money, just as marketplaces function best when weights and measures are reliable and fixed.
China grasped that truth in the early 1990s and in 1994 fixed the yuan to the U.S. dollar, as Hong Kong had done with its dollar a decade before. China’s trade, and its economy, boomed. (So ludicrous has economic thinking become that the U.S. complained this was an act of economic warfare, “currency manipulation.” American officials believed that because the Chinese economy was doing well, its currency should rise against the dollar, just as if the yuan were an equity. By this kind of reasoning, the dollar in credit-challenged Illinois should be worth less than it is in thriving North Carolina.)
Countries have long been told by “development experts” at the IMF and elsewhere that devaluing their currencies would help them grow by making their exports cheaper and imports dearer, a modern variant of the old mercantilist superstition that plagued much of Europe from the 1500s to the 1700s, which held that a country’s power came from hoarding gold and silver. Today the cry for a country is: Get a merchandise trade surplus! Cheapening a currency, however, is repellent to foreign and domestic investment. Investing is risky enough, but if the risk is compounded by uncertainty over the value of the currency from which future income streams flow, then, perforce, there will be less risk-taking. Money is the means by which we trade with one another and invest. Hinder that, and we suffer.
