by ROBIN JASPERT
Central banks have been raising key interest rates to strengthen the Euro and the US Dollar. For indebted nations in the Global South, this means exploding costs, austerity, and intensifying inequality. Debt cancellation could remedy this situation.
The current policy of the European Central Bank (ECB) and the Federal Reserve is being sold by central bankers and the majority of economists with the argument that it lacks any alternative.
After more than ten years of lax monetary policy that guided as much money into markets as possible, increased liquidity, and stimulated inflation, a shift is underway: now, money is actively being withdrawn from markets to fight inflation.
Advocates of this shift ignore that other instruments of economic policy, such as comprehensive price caps, taxes on corporate profits, and redistributive measures are far better suited to fighting inflation than the current focus on monetary policy.
In light of this, it is hardly surprising that outside of the business press, the impact of monetary policy decisions in the Global North on the states of the Global South are rarely even mentioned, let alone debated. When currencies of the Global North and especially the US Dollar become stronger (the stated goal of the current policy shift), states in the Global South come under pressure, as their currencies become comparatively less valuable. As a result, many of these states lose the ability to service large outstanding foreign debts and thus find themselves forced to take on new debts under ever worsening conditions. All the while, they are pressured by international institutions to implement austerity measures – as long as they aren’t currently ruled by neoliberal governments happy to cut public goods and services on their own.
Strong Currency at the Expense of the Poor
While history never repeats itself perfectly, a look to the past paints the current monetary policy shift in a troubling light. When central banks in the Global North tightened the monetary reigns in the 1970s in response to low growth and high inflation, Latin America (along with other parts of the Global South) was hit by an unprecedented sovereign debt crisis that plunged the continent into a nearly decade-long economic crisis. And as is so often the case, wage workers, indigenous people and the poor were hit the hardest.
In many ways, the political-economic conjuncture of 1979 is similar to our present. Although Covid-19 did not exist, and most imperial wars of aggression were still waged by the US, the situation in the Global North was just as much a product of low growth and high inflation as it is today. These factors stemmed, among other things, from the collapse of the Bretton Woods system.
Though the Bretton Woods Agreement foresaw the establishment of the International Monetary Fund (IMF) and the World Bank, two institutions that exacerbate global inequality, it also created a system of fixed exchange rates. Based on the gold standard, this system played a major role in stabilizing the global economy following World War II. When Richard Nixon abandoned Bretton Woods in 1971, partly to combat recession in the Global North and financial speculation, exchange rates became increasingly unstable, as mountains of yield-hungry capital were unleashed on the Global South.
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