Connect with us

Economy

Money: 5000 Years of Debt and Power- Book Review

Published

on

Michel Aglietta, most famous as the cofounder of the regulation school of economics, has written Money: 5000 Years of Debt and Power.  As the title suggests, it’s a bold exploration of the history of money and, by extension, finance in general.  The book demonstrates that money not only shapes economics, but society itself.

Aglietta starts off by giving a brief history of money and commerce.  He dispels the myth of the prehistoric bartering system of the “pre-money” era of humanity that everyone was taught in school.  There’s no archaeological evidence that bartering was ever the standard for commerce.  As the book title reminds us, items such as shells have been used from antiquity as a currency in societies that haven’t mastered metalwork.  The start of the Bronze Age around 5000 years ago ushered in both a rapid rise in industrialization and the use of metal coinage as a form of payment for increasingly large and cross-border transactions.  A coin’s makeup of gold or silver determined its value in a manner that served as a consensus in the ancient world.

Over time however, money became more complex due to war and trade.  Indebted men often had to end up selling their wives, children or themselves into slavery to pay off their debt.  Thus,  “[Athenian statesman] Solon carried out the first monetary reform. This was an effort in Athens before the end of the 6th century B.C., in an effort to alleviate the poor peasants’ debts to the landowners.  According to Plutarch’s account, Solon reduced the value of these debts by 30% by devaluing the drachma by this same proportion.”  Monarchs started to unilaterally re-value their currencies or mint lower-quality coins to fit the needs of the state.

One of the foremost determinants of currency value in the pre-modern era was the availability of gold and silver.  If a ruler lost access to mines or the means to buy precious metal, then financial disaster would likely ensue.  Conversely, striking gold literally would be the same as striking gold metaphorically.  Britain, France and especially Spain became fabulously wealthy in the colonization era by stealing gold and silver from Africa and the Americas.

Ironically, this “dual standard” of gold and silver would also create instances of incredible currency volatility.  Spain brought back so much silver from the Americas that it massively deflated the value of silver, which ultimately caused lasting economic harm to Spain.  Too many or too few coins in a country’s circulation can have ripple effects around the world.

Thus, Dutch and British economists started to move the global market towards the scriptural system during the Enlightenment.  Increasingly complex financial instruments, such as interest-bearing business loans, were developed by merchants in Amsterdam and London.  “A purely metallic [bullion] system creates money on the basis of a pre-existing and prior source of wealth: the metal that has already been extracted from the ground.  On the contrary, the creation of scriptural money by issuing debts transferable to third parties is only valid if these debts can ultimately be settled. They’ll only be settled if the issuer has acquired some value that allows it to honor the debt.  Money is thus created on the basis of anticipated future wealth.”  Modern finance was thus born, fuelling colonial commerce and industrialization.

The book spends the bulk of its attention exploring the post-WWII “Bretton Woods” era of finance, in which the gold standard was replaced by the current supremacy of the US dollar.  This has had profound impacts on everything from diplomacy to Third-World development to Middle East conflicts via the “petrodollar”.  Dollar primacy in the global economy walks hand-in-hand with the US’ laissez-faire attitude towards the regulation of banking institutions and other market actors.  Aglietta expresses some reservations with this status quo.  For instance, he writes, “The tendency towards growth in international capital movements hasn’t had a positive effect on long-term growth… Studying a wide sample of developed and emerging countries, Dani Rodrik & Arvind Subramanian have shown that opening finance up internationally had no effect from 1985-2005.  More recent Bank for Internat’l Settlements studies conducted by Stephen Cecchetti and Enisse Kharroubi have even suggested that the opening up of finance had a negative effect on global productivity.”

With the Great Recession and the current political and currency instability in the US, Aglietta argues that the world needs to move past the dollar standard.  Certain millennial economists might offer up cryptocurrencies as a savior for global commerce.  Aglietta is bearish on this proposal; he writes, “Bitcoin is nothing but a disembodied monetary instrument… detached from any notion of the public good and disconnected from any sovereign authority that might guarantee its liquidity and perennial endurance. Bitcoin maintains the illusion of a virtual community through the networks of those who promote & exchange ideas about it, but it is not supported by any hierarchically organized banking system overseen by a central bank or by a clearing system that would allow the lasting sustainability of payments to be guaranteed.”  The euro could arguably be suitable replacement for the USD, but Aglietta is likewise pessimistic.  He writes extensively about the limitations of the euro and the European Central Bank.  Since the euro is a non-sovereign currency, it has severe limitations in terms of revaluation and addressing financial crises, among other issues.  He’s slightly less pessimistic about the renminbi.  For an interesting overview of the renminbi’s long-term prospects as a global currency, read the final chapter of this book, then compare it to the Renminbi chapter of George Magnus’ RED FLAGS.

His proposal is for a system called Special Drawing Rights (SDR).  It’s essentially a global Central Bank that sets universal banking standards, ensures liquidity in cases of a recession or depression by acting as a last-resort lender for national banks and offers better access to credit for developing countries.  Many of these problems were supposed to be addressed during Bretton Woods negotiations and later by the formation of the IMF; Aglietta writes about why these initiatives failed.

Aglietta firmly lays out the case for the centralization of authority in MONEY.  He bemoans the impotence of current banking institutions and the competing exchange rats and financial policies of different nations.  On the climate crisis, Aglietta writes, “Biodiversity and climate change are the two great environmental fields that appear as public goods and are therefore impossible to substitute for forms of capital produced according to market-based incentives.”  He expresses optimism in a future where markets are regulated more efficiently and there’s a lot more coordination between different banks and nations to address financial crises and manage inflation and exchange rates.

Continue Reading
Comments

Economy

How to build your entrepreneurial mindset today

MD Staff

Published

on

An entrepreneurial mindset is a way of life. Even if you aren’t starting your own business, an entrepreneurial mindset teaches you that no problem is insurmountable: you can overcome challenges through perseverance and resilience.

Here are five things you can remember to build an entrepreneurial mindset today. If you’re aged between 18-30, why not start by applying to be a Young Champion of the Earth in 2019? Stay tuned—the competition is opening soon!

Transform problems into opportunities

There are so many clues in everyday life. Is there anything that you experience daily that frustrates you? Perhaps it is the prominence of unsustainable materials in your local shop and restaurants, such as plastic straws or unnecessary food packaging? Often, alternatives to problems do exist, but no one has thought of connecting them in specific circumstances. A good example is supplying restaurants and bars with paper straws. Entrepreneurial mindsets apply a lens which identifies problems not as negative issues but as opportunities to be solved, towards creating value in our economy.

Dare to dream and believe in yourself

If you can dream it and believe it, you are halfway there. How big you can dream is a component of your potential for success. Everyone has ideas—but daring to dream big, and then believing in yourself to apply an entrepreneurial mindset and bring them to reality, takes effort. This year, why not push yourself to think creatively? You could come up with a problem once a week, and each week, come up with one matching solution, for example. The key is to think outside the box, to think of a problem as a potential solution.

Know yourself and discover what you are passionate about

Solving problems, especially those associated with the environment, can be daunting. You will constantly be faced with challenges in your journey to change the world. Some environmental challenges feel so large—like those brought about by climate change. But helping to break down large issues into smaller ones which everyone can take steps to solve, is part of the entrepreneurial journey. Remember that you are capable. Find problems that you are passionate about solving and connect with others passionate about solving them too. This will help you through the tough times to stay motivated.

Go for it and don’t take no for an answer

We all have the foundations of an entrepreneurial mindset. We can all identify problems and think up ideas about how to solve them. Being an entrepreneur pushes you to go out there and take actions to achieve them. Often, this process forces you to think through a specific problem in more detail. It helps you to truly understand pathways towards a solution which others might not have thought about. An idea does not have application in the real world if it is not hammered out in real situations. Part of being an entrepreneur requires following this process, identifying real experiences which can be made better or more efficient, and talking with other people who experience similar challenges to find solutions. Using the resources you have at your disposal will force you to be creative. Keep improving your solution. As you go on, you will eventually gain traction and interest. From there, the possibilities are endless.

Learn, embrace uncertainty and accept failure

Eric Ries from the lean startup says that entrepreneurship is “management under conditions of extreme uncertainty”. Forging your own path to solve a problem that no one has solved before is scary—things change constantly. There will be many obstacles and there will be failure. But an entrepreneurial mindset teaches you that failures are opportunities to learn in disguise. An entrepreneurial mindset embraces uncertainty and learning, to leverage the opportunities that emerge from the space between them.

UN Environment

Continue Reading

Economy

Iran’s oil market facing the new sanctions era: What to expect

Published

on

After an expected hiatus in Iran’s oil exports to some of the country’s main customers following the reimposition of the US sanctions, once again the country’s old buyers are coming back to take advantage of the 180-day window which has been presented by the waivers granted in November.

Although it took some of these buyers more than a month to make necessary arrangements or to contemplate on the matter, it seems that finally the convenience of buying oil from Iran has outweighed the skepticism overshadowing Iranian oil industry.

With the customers coming back everything was seemed to be, once again, in favor of Iran’s oil industry, however the US government’s disappointing comments last weekend could change all the equations for Iran’s oil market in the months to come.

“The United States is not looking to grant more waivers for Iranian oil imports after the reimposition of US sanctions.” Brian Hook, the US special representative for Iran, told an industry conference in the United Arab Emirates capital Abu Dhabi.

Considering this new stand, the immediate question which comes to mind is what would become Iran’s oil market after the 180-day period is over? To answer this question two main aspects should be taken into account, one is the consideration of Iran’s ability to bypass the sanctions and the second is the possibility of Iranian oil customers being pushed away in the wake of difficulties resulted from the sanctions.

Iran’s capabilities

Even though at first the markets were almost certain about the severe impact of Trump’s plans on Iranian oil industry, but the surprising decision on granting eight countries waivers to continue buying Iranian oil significantly mitigated the harsh outlook.

Now, nearly three months after the reimpostion of the US sanctions on Iran, the market has witnessed that the Iranian oil exports are not plunged as much as expected.

Although due to the confidentiality of Iran’s crude oil sales data, especially in the sanctions era, there is not an exact report for the level of the country’s oil exports in recent months, however based on the estimations presented by institutes which track Iranian oil vessels, the country’s oil exports stood at near 1.1 to 1.3 million barrels per day in November and December.

Furthermore, considering the exempted countries which are going to resume their oil purchasers from January, and the new approaches which Iran is taking to sell its oil like offering oil at energy exchanges or finding new customers, the country can definitely maintain an even higher level of exports in the months to come.

According to a FGE report, Iran will ship 1.08 million barrels per day in January and exports 1.115 million barrels per day in February.

We should not also forget Iran’s experience in bypassing sanctions to sale its oil. As I mentioned before, Iran has acquired certain ways to bypass sanctions and sell its oil even during the sanctions.

Iranian oil buyers

Nearly two months after the US granted eight countries waivers to continue purchasing oil from Iran, recently some of the Asian buyers have signaled willingness for resuming oil imports from the country.

China, India and South Korea have placed orders for loadings in January or February and Japanese refineries have also expressed hope to resume shipping in Iranian oil as from late January provided that some final clearance and paperwork were made.

As reported by S&P Global, the presidents of Japan’s JXTG Holdings and Cosmo Oil stated that they aim to load Iranian barrels at the end of January upon making some final clearances.

“Cosmo Oil aims to load around 1.8 million barrels of Iranian crude at the end of this month” the report read.

Last week, head of South Korea’s SK Innovation, which owns South Korea’s biggest oil refiner SK Energy also told Reuters that South Korean oil buyers are expected to restart Iranian oil imports in late January or early February.

India’s Ministry of External Affairs has also stated recently that the Asian country will continue importing Iranian oil. According to data provided by FACTS Global Energy Group (FGE), four Indian refineries namely, Indian Oil, Bharat Petroleum, HMEL and HPCL have placed orders for 321,000 barrels of Iranian oil in February.

Regarding Greece, Italy, and Taiwan which were exempted from the US sanctions, no news has been officially out since November.

Even though Europe opposed Trump’s actions, and have reassured Iran’s government that they want the nuclear deal to continue, refiners in the green continent have had little choice but to comply with sanctions. The US can cut off access to their financial system for any company judged to be doing business with Iran.

The customer preferences

With all that said, there are still other considerations which should be taken into account to have a rather clear view of what to expect for the future of Iranian oil.

The fact that it took near two months for some of the Asian buyers of Iranian oil to make necessary arrangements to come back to Iran’s market, is an indication of the hardships that the customers of Iranian oil will be facing in trade with Iran.

The heavy bureaucratic process which the exempted countries have to go through in order to buy Iranian oil, could push some of the more cautious customers like Japan and even South Korea away from Iran.

Most Asian customers of Iranian oil are very sensitive and conservative in their relations with the United States, and this is likely to be a barrier in the way of their energy relations with Iran.

Japan is a clear example of this situation; despite being granted sanction waiver the Japanese refineries have conditioned the resumption of their purchases upon “making some final clearances”.

Regarding Iranian oil buyers’ future decisions, yet another fact that should be taken into account is the reality that with Saudi Arabia, Russia and US producing almost at their peak, and with prices hovering near $60 there is currently a lot of cheap oil in the market.

In such a market, it is natural that some of the Iranian oil customers prefer to purchase their oil from other oil suppliers instead of exposing themselves to the consequences of breaching the US sanctions.

So in the end, it all comes to the incentives which Iranian government is willing to provide to make its oil attractive enough to worth the risk.

It seems that the country has taken some steps in this regard, since earlier this month, the Iranian Deputy Oil Minister for International Affairs and Trading Amir-Hossein Zamaninia said despite the US. sanctions more oil buyers have approached the country for negotiations.

“Despite US pressures on Iranian oil market, the number of potential buyers of Iranian oil has significantly increased due to a competitive market, greed and pursuit of more profit.” Zamaninia said.

Mentioning “pursuit of more profit” indicates that Iran is probably going to provide its customers with remarkable discounts or provide them with long-term payment plans which considering the current situation in the market seems to be the best decision at the moment.

First published in our partner MNA

Continue Reading

Economy

Iran: Currency reconversion not a turning point in economic reformation

Published

on

One of Iran’s main economic policies, under the framework of the sixth five-year development plan, is modification of banking system and reformation of monetary policies, moving forward toward which the Rouhani administration put forward the plan to shift the national currency from Rial to Toman earlier in December 2016 by eliminating specific number of zeroes.

However, the administration decided to postpone implementation of currency reconversion policy in 2016 due to some reasons including the expressed concerns about the time unfitting economic conditions which would ignite inflation and economic instability.

The policy basically seeks to facilitate monetary transactions among the Iranians and match the currency being transcribed in official documents and banking bills (rial) with the one utilized in real daily lives of Iranians (toman). Rial has practically been replaced by Toman in daily transactions as the result of the cumulative inflation over the recent years.

On Saturday, the Central Bank of Iran (CBI) submitted the bill on lopping off four zeroes of the national currency to the cabinet, the act which drew public attention to the issue again, forming a chorus of criticism and speculations.

Through its proposed bill, the CBI seems primarily able to re-empower the depreciated national currency, tangibly decrease the ever-increasing liquidity volume, and make a nominal reduction in prices of goods and services in the country.

The most remarkable achievements of implementing the bill, however, would be a psychological one among the society.  Shifting from rial, the free market exchange rate of which is presently about 110,000 against the U.S. dollar, by cutting four zeroes to toman may cover the psychological aspects of the inflationary impacts of rial devaluation, which has unprecedentedly increased prices in Iran. It is said to be able to recover national currency’s value against U.S. dollar to some extent and cool down the inflated prices, as well.

Omitting zeroes from the national currency would surely facilitate calculations and money transfers in daily transactions and would seemingly retaliate for the sharp recent rial devaluation but it should not be expected to improve Iranians purchasing power at all.

It would not have any specific impact on economic indices, inflation, investments, job creation or demand and supply, either.

As a matter of fact, economic stability and single-digit inflation rate are the most significant prerequisites of implementing currency reconversion while Iran is experiencing none of the named factors.

Currency reconversion per se would have an inflationary effect. To curb its inflationary impact, it must be done simultaneous with taking contractionary measures and modifications in monetary policies.

In addition, printing new banknotes and injecting them to the market would impose an amount of costs on the shoulder of the central bank.

Addressing the issue in an interview with the Tehran Times, the Iranian economist and President of Iran World Trade Center Mohammad Reza Sabzalipour said that “the government aims to hit several targets with one shot.”

“It seeks to control money and liquidity volume in the society i.e. cutting four zeroes would change the present 17 quadrillion rials (about $404 billion) of liquidity down to 1.7 trillion rials (about $40.4 million) overnight,” he explained, “but the zeroes will incrementally come back and liquidity will be increased over time, in case CBI continues printing fiat money.”

“The act would appease the public opinion just for a short time when they see the price numbers of the goods and services are decreased but after a while when their income also comes with lower zeroes, they will find out that what has happened has not improved their commonwealth,” he added.

“There is no reason for us to consider a national currency with less zeroes a more valuable one,” Sabzalipour said, “having a strong economy is not necessary related to having a national currency with low number of zeroes but to positive trade balance and high quality of the nation’s livelihood.”

“The decided monetary reconversion is mere a political and a psychological move,” he underscored.

What the government is getting prepared to do should not be expected as a revolutionary step in Iran’s economic and banking reformations, that would bring the nation a better livelihood and a more prosperous economy.

It is a postponed measure that has not been implemented in previous years due to lack of proper economic conditions and it is being done under the circumstances that the country is experiencing the toughest economic conditions in its history thanks to the U.S.-led draconian sanctions and when a rampant inflation rate is expected for the upcoming Iranian year.

The costly currency reconversion would, for sure, facilitate money transfer and calculations in daily transactions and also reduce the volume of exchanged paper money and etc., but its effect would be neutralized and the omitted zeroes would snap back one after the other in the long-run, in case of monetary mismanagement or any other unpredicted international, political or economic event which would threaten the economy.

First published in our partner Tehran Times

Continue Reading

Latest

Style24 mins ago

Breitling Navitimer 1 B01 Chronograph 43 Pan Am Edition

Breitling recently launched its first capsule collection – the Navitimer 1 Airline Editions – celebrating the brand’s important role in...

Newsdesk2 hours ago

Africa Industrialization Day 2018 celebrated in Côte d’Ivoiren

On the occasion of Africa Industrialization Day’s (AID) worldwide celebrations, the United Nations Industrial Development Organization (UNIDO) and Côte d’Ivoire’s...

Europe4 hours ago

Why Tony Blair is so angry?

The former British Prime Minister doesn’t have a good time! On the one hand, Tony Blair is witnessing the continuation...

Travel & Leisure6 hours ago

Welcome to Boston’s Newest Destination for Innovative Meetings & Events

Four Seasons Hotel One Dalton Street, Boston is located within the brand new, 61-storey skyscraper in Boston’s Back Bay neighbourhood...

Reports8 hours ago

Renewable Energy the Most Competitive Source of New Power Generation in GCC

Renewable energy is the most competitive form of power generation in Gulf Cooperation Council (GCC) countries, according to a new...

East Asia10 hours ago

China’s Soft Power Diplomacy on North Korean Nuclear Crisis

For about the last two decades, North Korea’s nuclear weapon development program has become one of the major issues of...

Newsdesk12 hours ago

World Bank Group Announces $50 billion over Five Years for Climate Adaptation and Resilience

The World Bank Group today launched its Action Plan on Climate Change Adaptation and Resilience. Under the plan, the World...

Trending

Copyright © 2018 Modern Diplomacy