When I was an adolescent, I learned that an old man in an office somewhere could adjust a couple of numbers and change the value of money, I’ve been a skeptic. I was raised as a critical thinker, and so the more I studied about money and it’s value, the more I began to find the global monetary system to be specious.
I’ll never forget (when I was a teenager), reading about how financial markets could be manipulated to actually ruin an economy. But perhaps the one aspect of monetary policy that I’ve struggle with, is the concept of the monetary exchange rate. For the longest, I assumed the US dollar was worth more than most all others because it was pegged to Gold. In school we were taught hat dollars were promissory notes that promised real value. Then one day I had a very rude awakening, when I learned that simply wasn’t the case. Between 1971 and 1973 US President Richard Nixon ended the Breton Woods System and un-pegged the US Dollar from Gold. This also changed the fixed exchange rate and introduced an opportunity for banks and other speculators to make money through these variable rates.
Well, what does un-pegging the dollar actually mean? It means that our dollars are really only worth the paper they are printed on. As I began to understand the international market better and had a chance to study the Foreign Exchange, I was able to see how inequity was permanently built into the monetary system. The trouble now, is that inequity is arbitrary–there is no real reason for a dollar to be worth more than a peso or a cedi. The only exception to this is the oil-dollar which is steadily losing value as nations around the world find alternatives to oil. It’s simply a case of, “My ice is colder because I said so.” Your currency is worth less because, well . . . we said so.
This means world economies will always aspire to the higher value currency. It ensures that no matter a nation’s productivity, they are set in a permanent currency purgatory. This has major implications for developing economies like Nigeria, Pakistan, Thailand and others. It is my belief that critical questions will need to be addressed in the future and new alternatives will need to be forged if developing economies are to truly develop.