“China didn't just do a triple devaluation: it radically changed its approach to monetary policy and the external value of its currency. We have to get used to the idea that, from now on, in the world there won't be only the dollar, but also the renminbi, or yuan if you prefer, that is, two currencies. In fact, let us remember that China is not the train carriage, it is the locomotive”. This is how Giacomo Vaciago, famous economist and emeritus professor at the Catholic University, reads the Chinese decision to depreciate the yuan three times in 72 hours. Here is the interview he gave to FIRSTonline.
Professor, what is happening in Beijing?
“Something important, more than meets the eye. When the Chinese do something, they always look far ahead, they act on the basis of long-term strategies, twenty-year plans, not the Stock Exchanges of a few hours earlier. Two days ago they corrected their currency by two points on the dollar, yesterday they corrected again and today again. The novelty is radical, it means that from now on the currency is on the market and reacts according to the economic health of the country and others. In a certain sense, a nineteenth-century situation reappears, when the world had the pound and the dollar. From now on there will be the Chinese currency and the American currency. China wants to implement a currency policy like the others, like the USA, letting the market decide the right value of the renminbi, based on economic policy objectives and their credibility".
However, the Chinese five-year plan envisaged fewer exports and more domestic market. Does this choice prelude a change of course?
“No, I repeat, it's not a devaluation just for exports. The exchange rate is now decided by the market. The goal of increasing domestic consumption remains. These are not decisions made by accident, nor based on the slowdown of the last month. It is a revolution, which implies a progressive and greater independence of the Chinese central bank from the government, as is the case in other countries. China wants to become normal, stay on the market and make use of all the governing mechanisms of the international monetary system, also demanding more space within the Monetary Fund”.
However, someone is paying a rather high price on the Stock Exchange: luxury, fashion, hi-tech, some car manufacturers. The price of oil has even collapsed…
“Stock exchanges react like this because they don't quite understand what's going on. The reasoning they make is elementary: China devalues because it is in a bad way, so it will consume less. It is not so. In this way, the Chinese economy is strengthened and not necessarily at our expense, as some fear, because it also needs the customers of its products to stay in good health. As consumers, on the other hand, the Chinese want and will continue to want luxury goods. Are we really worried about a country that is still growing significantly? Before, the growth was too much, it was inflated”.
“Oil instead deserves a separate discussion, because it is the last remaining anti-cyclical policy. When the markets go badly, the price of oil falls, to give consumers a breather, to support their purchasing power, so that they can change their cars and household appliances. So today we have a price per barrel which, it seems to me, is the lowest in the last six years”.
Returning to China, observers are divided. On the one hand, the IMF is promoting the decision, on the other, there are fears of a currency war. Who is right?
“The Monetary Fund has issued an unofficial statement to say "well done China", because its line is to have countries and currencies whose economic balance of power is reflected on the foreign exchange market. An oligopoly of a few large coins. Those who speak of war, on the other hand, have not understood that a thirty-year peace treaty was signed yesterday. In the immediate future there may be the problem of the Stock Exchanges and a monetary battle, then things will clear up”.
In a world dominated by two currencies, is the Euro destined to play a supporting role?
“The euro no longer interests anyone, it now only concerns the Greeks. Is there a Europe that reacts to Washington or Beijing? The Juncker Commission goes on holiday in August, as if everything stopped, but the rest of the world works, the Chinese don't even know what August holidays are".
“One day not too far in New York and Shanghai will ask what is Frankfurt? Where is Berlin? Ah, I'm in Germany, that little appendage of China. Our way of thinking reflects the past, we always have our heads turned backwards. Istat analyzes unemployment data without taking into account foreign investments. But Italian companies create jobs where they grow”.
“The euro is a currency with a great past, full of dreams, but it is the currency of a country that doesn't exist. Without a State it is a currency without a future, as Padoa Schioppa said 20 years ago. Behind the euro, today, there are only 19 quarrelsome governments and we live the paradox that, if the economy goes badly, our currency appreciates”.
“I believe that the only road we have is an alliance with the USA, a beautiful bridge over the Atlantic. Indeed I would suggest adopting the dollar, a single currency for the rich countries of the world. Because if the coins remain three the only sure winner will be China. Europe cannot go on living with its head turned backwards, thinking of preventing a war that ended seventy years ago and arguing with Greece. What we are doing is just archeology. Go on".
