Japan has spent a record near ¥10 trillion (US$64.15 billion) over the past month from its foreign exchange reserves on market interventions to prevent the dollar exchange rate from blasting above 160 yen, according to recent finance ministry data. Japan has sufficient reserves to be able to withstand this, but that is not the case with many other Asian nations that have seen the dollar soar higher against their currencies.
What all this boils down to is that you cannot withdraw from globalisation on your own terms, as the US has been trying to do in its trade and geostrategic policies. And you cannot have one major power in effect running monetary policy on behalf of those who do not participate in the policymaking.
These influences radiate out from the US, which is at the centre for the obvious reason that it is the world’s largest economy. But what if, to quote the poet William Butler Yeats, “the centre cannot hold”? Then, as he suggested, “things fall apart” and “anarchy is loosed upon the world”.
Things are not falling apart just yet but the strain is showing in myriad ways. For example, there is a great sucking sound as global capital, which logically ought to be flowing from the rich “North” to the poorer “South” is instead flowing in the opposite direction, lured by the strong dollar.
The US is attracting ever more foreign capital to help fund its yawning external deficit and by the end of last year, the outstanding US official debt was equal to almost 100 per cent of its gross domestic product. That figure will only rise in the coming years, the Congressional Budget Office has predicted.
Foreign direct investment or “business” investment, which likewise ought to be flowing from North to South to facilitate development and in search of comparative economic advantage, has been flowing increasingly to the US.
The distortions created by having one major power effectively positioned at the centre of the world have been masked increasingly by the tactic of forming alliances, which justify themselves as instruments for the enforcement of the rule of law and as symbols of shared values. But this is no substitute for a stable global order.
More statesmanship and less brinkmanship would go a long way in burnishing that image. Otherwise a great nation could come unstuck for want of true vision and balance.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs
