AP Photo
A shadow of a man is reflected on a glass as he reads a newspaper about China devaluing its tightly controlled currency on Tuesday following a slump in trade, triggering the yuan's biggest one-day decline in a decade.

In a smaller world, giants must tread with care

With China’s surprise move on its exchange rate and the US due to raise interest rates, the time is ripe to reset global financial rules that soften the effects of economic nationalism.

China threw a firecracker into global markets Tuesday by devaluing its currency. The sudden move by the world’s second largest economy, which will give its exports a boost, came as the United States, the world’s largest economy, plans to raise interest rates for the first time in years. The US move, aimed at heading off inflation, might also roil markets. The message from both actions is clear: A tightly knit global economy needs a new system to help countries rise above economic nationalism and take better regard of others before they act.

China’s surprise manipulation of its exchange rate is the type of beggar-thy-neighbor move that various global rules since the 19th century have tried to prevent. Beijing seeks a competitive edge for domestic needs without much consideration of the greater global good. In the US, too, the Federal Reserve has no mandate to consider foreign concerns as it prepares to hike interest rates. 

The two giant economies are asleep as they roll in a very crowded global bed.

The last big attempt at arranging global financial rules was the 1944 agreement negotiated in Bretton Woods, New Hampshire. The agreement pegged currencies to the US dollar, which was linked to the value of gold. That system began to break down in the 1960s. The International Monetary Fund, which was created at the time, still tries to form a consensus on when to control exchange rates or interest rates. But the rise of China as well as Brazil, India, and Russia has challenged the IMF consensus. These nations do not always share the values of that consensus, which was based on lessons learned from the militant nationalism of two world wars. 

China, in fact, argues against the idea of universal values. It instead wants greater power and prestige based on the size of its economy. This is reflected in its demand for more say in IMF decisions and on the conditionality set on loans to troubled nations. It has also set up its own organizations in Asia that will control rules on financing new infrastructure.

National power alone, however, without a legitimacy based on shared values, is a very short-term perspective. In contrast, Germany has been careful to weave a consensus with other European nations to deal with the Greek debt crisis rather than throw around its economic weight in repairing the eurozone.

The former president of Ireland, Mary Robinson, says this year is “the Bretton Woods moment for our generation.” The world already has two big negotiations due for completion this year, one on climate change and another to set new goals to reduce poverty. Why not start talks for new rules in global financial governance? 

The world economy should not be based only on mutual interests in a transactional way. It needs to be based on shared values, or a recognition of a common basis for progress. That can help financial leaders think beyond their national borders.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to In a smaller world, giants must tread with care
Read this article in
QR Code to Subscription page
Start your subscription today