This week, Bernard Darnton peers through the looking-glass at claims we can devalue our way to prosperity.
If I sold milk, which thankfully I don’t, I might be even more upset by the exchange rate than by the early starts and hard work.
The flip side of the milk price is that a high dollar is a good thing if you want to buy anything made overseas, which is pretty much everything. Adam Smith pointed out that exports aren’t the be-all-and-end-all of an economy; they’re simply the price we pay to get shiny tat from China.
The simple fact is that you can’t make yourself rich by making your money worth less. If you could, Zimbabwe would be the richest country in the world. Austrian economists would tell you that paper money is worth nothing, but enterprising Zimbabweans have shown that if you change a billion dollars for a hundred ten million dollar bills you can wipe your arse on Mugabe’s smiling visage for less than the cost of standard two-ply.
A valuable currency is often a sign of a strong economy. In our case it’s more that the Federal Reserve and the Bank of England have faster printing presses than we do. Calls to halt the rise of our currency are really calls to destroy our economy faster than the rest of the world.
In any case, Alan Bollard and Bill English have admitted that there’s nothing they can do about it. If the Reserve Bank was going to intervene in the currency markets it would be more efficient just to give George Soros all of New Zealand’s money and then take the weekend off.
Our rising dollar is really America’s falling dollar. America’s rolling presses and staggering deficits are pushing their currency off a cliff. Holders of foreign reserves are already looking round for alternatives. One that’s been mentioned is the International Monetary Fund’s Special Drawing Rights. From what I can make out these are just tarted up thin air. They share all of paper money’s susceptibility to governments’ destructive shenanigans but without the Zimbabwean dollar’s more practical benefits.
If the government actually cared about increasing the size of the economy, rather than the size of its share of the economy, it would stop its continuous dilution of the currency. Even better, it could back the currency with gold. It would be stable, it would retain its value, and that would help the country prosper.
There are plenty of criticisms of the gold standard: it’s susceptible to fluctuations in the supply of gold; there’s nothing like enough gold around to cover the amount of paper money in circulation, so transition would be difficult. Bimetallic systems are even worse. However, they’re better than what we’ve got for one simple reason. Governments haven’t discovered the secret of alchemy. And if they can’t print gold, they can’t bugger it up.
* * Read Bernard Darnton’s NOT PJ column every Thursday here at NOT PC * *