A mark, a yen, a buck or a pound
Is all that makes the world go 'round
That clinking clanking sound can make the world go 'round...
Countries fighting over the value of money: what can be better international political economy fodder than that? As Liza Minnelli and Joel Grey sing, money makes the world go 'round. The recently held G-20 in Johannesburg may have served to illustrate the growing clout of non-G-7 players like India and Saudi Arabia. The communique from the get-together speaks of reforms necessary throughout the world, including "greater exchange rate flexibility in a number of surplus countries" (take that, China):
We also agreed that an orderly unwinding of global imbalances, while sustaining global growth, is a shared responsibility involving: steps to boost national saving in the United States, including continued fiscal consolidation; further progress on growth-enhancing reforms in Europe; further structural reforms and fiscal consolidation in Japan; reforms to boost domestic demand in emerging Asia, together with greater exchange rate flexibility in a number of surplus countries; and increased spending consistent with absorptive capacity and macroeconomic stability in oil-producing countries.Next up, the world's agitator du jour Hugo Chavez is calling for other countries to start pricing their wares in currencies other than declining US dollars, only to be rebuked by Saudi authorities who are nominally US allies:
King Abdullah of Saudi Arabia said OPEC shouldn't make oil a source of conflict, contradicting Venezuelan President Hugo Chavez who wants the oil exporter group to become an active ``political agent.''Lastly and on a related note, various Middle East states are said to be thinking of whether to revalue their currencies and then re-peg them to the US dollar. (Weird half-baked move compared to moving to a currency basket, but it's only conjecture at this point in time.) Pegging to the falling dollar has meant importing unwanted inflation in Middle East economies:
``Oil is an energy for building and prosperity, it shouldn't become a means of conflict,'' King Abdullah said at the start of the group's heads of state summit in Riyadh today. ``Those who want OPEC to become an organization of monopoly and exploitation ignore the truth.''
The Organization of Petroleum Exporting Countries, provider of more than 40 percent of the world's oil, is holding its third heads of state summit since it was founded in 1960. The Saudi foreign minister clashed yesterday with a push by Iran and Venezuela to debate pricing oil in currencies other than the U.S. dollar.
``OPEC was born as a geopolitical force and not only as a technical or economic one in the '60s,'' Chavez said, speaking before King Abdullah. ``We should continue to strengthen OPEC, but beyond that, OPEC should set itself up as an active political agent.''
The contrasting view on OPEC's role in the world comes a day after a disagreement between Venezuelan Oil Minister Rafael Ramirez and Saudi Foreign Minister Prince Saud Al-Faisal on whether to move away from the dollar was accidentally broadcast on live television.
Gulf states, including Saudi Arabia and the United Arab Emirates, may revalue their currencies while maintaining their pegs to the U.S. dollar, a person familiar with Saudi monetary policy said.
The states may revalue by an unspecified amount in as soon as a month's time, said the person, who declined to be identified because the matter is confidential. No decision has been made on whether to revalue, he said. Evidence has been gathered and will be presented to policy makers, he said, without giving details.
Saudi Arabia, Qatar, Bahrain and Oman have repeatedly said they have no plans to change exchange rate policies. U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi said on Nov. 15 the U.A.E. may drop the dirham's peg in favour of a basket of currencies. Gulf currencies are under pressure as investors bet governments cannot manage inflation and keep their pegs.
Heads of state from the six Gulf Cooperation Council states will hold their annual meeting in Qatar on Dec. 3-4 where they will discuss monetary policy and security. The person did not specify if a decision would be made at the meeting.
The leaders will, though, take a decision on whether to abandon a proposed Gulf single currency at the meeting, Hamad Saud al-Sayari, governor of the Saudi Arabian Monetary Agency, said after a meeting of finance ministers and central bank governors in Riyadh on Oct. 27.