Friday, May 15, 2015

Duisenberg: "That's why we, presidents of central banks all over the world have been shouting, 'America, get your own house in order!'"

Wim F. Duisenberg (1935-2005) was the first president of the ECB (1998-2003).
copyright David van Dijk

"Can one accuse the Unites States of making developing countries pay for its arms build-up? Initially Duisenberg does not want to answer the question. Then he starts laughing and says: 'It won't be the first time they let other countries pay for their arms expenditures. The war in Vietnam was in fact not financed by the United States either, but by other countries.'

How is it that the United States has shifted its military expenditures to other countries? 'In short', Duisenberg replies, 'this amazing fact is the result of the privileged financial position the United States has in the world.' (In the following pages the topic will be explored further.)

Normally a country which spent so much money on arms would have had to either cut its domestic expenditures drastically or borrow huge sums abroad. The United States, however, did not need to make this choice because of the international role of the US dollar. After the Second World War the US dollar became the key currency of the international financial system, and this placed the United States in a unique position. It could virtually spend as much as it wished as long as the rest of the world was willing to accept the dollar and attach a certain value to it. Over the past few decades the dollar's key role has not only given the United States extraordinary space for financial manoeuvring, but also has meant the extraordinary dependence of the world on US economic policy.

So far Duisenberg has tried to avoid a moral judgement. But at the end of his story he says what he really thinks of the behavior of the US government:

‘The United States has at once a very privileged and a very responsible position. A country which is conscious of that responsibility should not only look at the internal effects of its policy, but also look at the international repercussions. America produces tremendous shockwaves affecting the whole world—in both the industrialized and the developing countries – but continues to be strongly inwardlooking. That's why we, presidents of central banks all over the world have been shouting, 'America, get your own house in order!'  The situation we now find ourselves in is going to be unbearable, both for the United States and for the World.’"

[excerpts from "The International Monetary Crunch: Crisis or Scandal?", Alternatives, July 1987.]

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