I recall the foreign currency turmoil of the 1960s leading up to Nixons unilaterally causing the U.S. to default on its obligation to exchange one ounce of gold for every 35 paper dollars presented to the U.S. Treasury from foreign countries in 1971.
Im not so old as to have lived during the 1930s. But I have read a lot about the 1930s, and the headlines I see now relating to currencies look very much like what I read with respect to currency wars at that time. With domestic economies contracting, countries sought to debase or cheapen their currencies by printing more money or exchange manipulations to gain exports.
Now this week, I read in the front page of the Financial Times, Brazil in global currency war alert. The article starts out as follows: An international currency war has broken out, according to Guido Mantega, Brazils finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.
Mr. Mantegas comments in Sao Paulo follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper.
Then in Saturday mornings Financial Times, there is another related headline speaking of France and China carrying out secret talks relating to growing international currency problems. That article begins with, France and China have been in talks for the past year as part of an effort by Paris to heighten co-ordination of exchange rates to promote stability of the international monetary system in the wake of the financial crisis.
The talks and their content have been kept secret, in an attempt to draw China into a discussion on global currency co-ordination, a subject that Beijing has been reluctant to countenance in the past.
In an ambitious move reminiscent of the currency accords of the 1980s, President Nicolas Sarkozy is hoping to open a debate on the subject when France takes over the presidency of the G20 group of leading nations in November, people familiar with the matter said.
France has long been an advocate of greater global economic governance and this summer, in a speech to French ambassadors of Frances priorities for the G20, Mr. Sarkozy called for a new framework for discussing currency movements.
This all feels to me like some major changes are in the offing. In 1971, Nixon stiffed France and the rest of the world and, longer term, the citizens of the U.S. by causing the U.S. to default on its gold obligations. As the lone superpower in the west, there was nothing the rest of the world could do. But I have long said that, in my view, Nixon was the worst President in the U.S., not because of Watergatethat was a side show. The real thing Nixon did to undermine the security of the United States in the long term was to get rid of the international gold standard.