An EU supporter displays a card in London on January 31, when Britain officially left the union. Photo: EPA-EFE
Opinion
Macroscope
by Anthony Rowley
Macroscope
by Anthony Rowley
Why Asia, too, mourns Brexit and the end of the European dream
Asia has sought in vain for a euro-style regional currency to challenge the US dollar since the 1997 financial crisis. The euro, for all its faults, is still the only currency capable of opposing dollar tyranny. But now, with a weakened EU, even that dream is fading
It would be difficult to match the eloquence of columnist Roger Cohen’s moving “Requiem for a Dream” published in The New York Times last month. The apparent end of that dream signalled by Britain’s departure from the European Union is something to be mourned in Asia as well as Europe.
This is true in the economic and monetary as much as in the political sense – perhaps even more so. There was a time not so very long ago when the EU was seen as model for future East Asian economic integration and the euro (even minus the pound) looked like a way to end US dollar hegemony.
Then came the 2016 Brexit referendum and, with Britain voting to pull out of the EU, rather than just stay outside the euro, Asia began to lose faith in the dream.
We are all familiar by now with the argument that the euro was not a good idea and that it deprived members of the EU, especially those such as Greece and Italy in southern Europe, of the freedom to devalue their currencies to restore export growth and economic recovery.
We are also familiar with the view that the euro zone is in effect a kind of Deutsch mark bloc, where a strong currency best serves the interests of a competitive Germany. There is some truth to such arguments but the other side of the coin is that there is a strong case for a single currency.
Apart from making commercial transactions and travel among euro-zone members far simpler than it used to be in the days of multiple European currencies, the euro emerged as a viable currency for international transactions and in which to hold monetary reserves.
As such, it promised, if not to unseat the dollar as the world’s premier transaction and reserve currency, then at least to erode the dollar hegemony that holds the world in thrall to the policies of the Federal Reserve, which is a central bank for the US but wields global power.
This power is transmitted through the US currency and its ability to influence global interest rates and monetary policy. Massive monetary expansion, which staved off financial collapse and economic recession after the 2008 crisis, was mainly brought to us courtesy of the US Fed.
True, it saved us from the consequences of a US-induced subprime mortgage crisis but at the cost of low, zero or even negative interest rates, a mushrooming global debt and dangerously inflated asset prices. The dollar has contagion potential that puts even the novel coronavirus in the shade.
An Asian version of the euro could have helped to erode dollar tyranny. For a while, the idea began to gather support, especially after the 1997 Asian financial crisis, when regional policymakers began getting serious about the need for Asia to be a “policymaker” rather than a “policytaker”.
The yen seemed to be a candidate to become the regional currency of choice for denominating trade transaction and as a repository for regional currency reserves, even if Asian nations were not then ready to move to a European-style common currency. But Japanese policymakers were wary of challenging the dollar.
As China emerged to become bigger economically than Japan – the world’s second-largest economy after the US – the yuan began to appear a more likely candidate as a regional anchor currency (in the same way the Deutsch mark was in Europe before the birth of the euro).
A bank teller counts yuan banknotes at a China Merchants Bank branch in Hefei, Anhui province, in 2010. Now the world’s second-largest economy, China is nevertheless not ready to step up and take responsibility for regional monetary autonomy. Photo: Reuters
But this time, it was China that was not ready to step up and take responsibility for regional monetary autonomy, or at least for achieving a greater degree of independence from dollar hegemony. Instead, Beijing opted to preserve sufficient exchange controls to protect its own economy.
Yet still, the EU remained intact as a beacon of hope for those that believe in the necessity for, and ultimate inevitability of, regional economic cooperation as a stepping stone on the road to true globalisation. And, there was always the hope that even Britain might join the euro zone.
Instead now, we have the divisive tactics of Boris Johnson with his quixotic idea that Britain can have the best of all worlds without taking responsibility for the development of regional building blocks. He wants to be a “rule maker and not a rule taker” and let the rest go hang. Asia can only look on in dismay.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs
