[News] Challenging the Dollar Dictatorship

[Anti-Imperialist News]

http://www.counterpunch.org/kozloff10232009.html

October 23-25, 2009


An Interview with Economist Ethan Kaplan

Challenging the Dollar Dictatorship

By NIKOLAS KOZLOFF

Last week, representatives of the Bolivarian 
Alternative of the Americas (known by its Spanish 
acronym ALBA) met in the Bolivian city of 
Cochabamba to discuss the future evolution of the 
trade bloc, designed to promote complementarity 
and reciprocity amongst left-leaning regimes in 
the region such as Cuba, Venezuela, Bolivia, 
Nicaragua and Ecuador. Since its inception in 
2004, ALBA has carried out important exchanges of 
goods and services; for example Venezuela has 
exported subsidized oil to Cuba and receives 
Cuban medical assistance in return. However, some 
wonder whether ALBA is practical or can help to 
foster real economic development for the region’s poor.

ALBA leaders however say it’s time to place such 
doubts aside. Last week in Cochabamba they 
declared their historic adoption of a common 
currency called the Unified System of 
Compensation of Reciprocal Payments or SUCRE in 
Spanish. Named after Antonio José de Sucre, a 
military general and hero of the wars of 
independence against Spain, the Sucre is to be 
gradually substituted for the U.S. dollar in 
terms of commercial exchange between ALBA member nations.

According to the new Cochabamba agreement, ALBA 
countries will make deposits in their respective 
currencies to an ALBA bank headquartered in 
Caracas. The Sucre will act as a payment 
compensation mechanism and allow ALBA nations to 
reconcile accounts when they carry out commercial 
transactions in local currency. It’s a kind of 
barter exchange system: if Venezuela for example 
buys textiles from Bolivia and owes the Andean 
nation a certain quantity of money, then this 
will be compensated in kind with other imported 
goods such as asphalt. The difference in cost 
will be reconciled by central banks located 
within respective ALBA countries which handle the 
Sucre. Payment requests meanwhile will be 
processed electronically between ALBA members via an ALBA bank.

Creation of the Sucre then will not lead to a new 
physical currency being issued. The Sucre will 
not have any intrinsic value but will have parity 
in relation to the U.S. dollar, the euro or 
Japanese yen. By early 2010, ALBA countries hope 
to start using the “virtual” currency, with 
future plans to convert it into a hard currency. 
Eventually, at some future yet undefined date, 
ALBA members hope to establish a unified regional 
currency which Bolivia has suggested could be 
named “Pacha” for the Quechua Indian word for Earth.

Recently, I sat down with Ethan Kaplan, a 
visiting Professor at Columbia University’s 
Center for Global Thought and Department of 
Economics. Kaplan, a former economic advisor to 
the Venezuelan National Assembly, discussed the 
economic and political implications of the Sucre.

NK: ALBA leaders say creating the Sucre is 
necessary so as to defray the regional effects of 
the world economic crisis. By substituting their 
trade in dollars with the new alternative 
currency, ALBA members hope to protect themselves 
from future financial downturns. How well do you think this will work?

EK: There’s a lot of evidence that currency 
unification leads to greater trade and hence 
there would probably be more intra-regional trade 
under the Sucre. The Sucre could make ALBA 
nations less subject to international financial 
crises outside of their group, but we need to 
remember that these countries have a lot of 
crises themselves. If ALBA nations make it harder 
for capital to leave their currency area, then 
they will have less to do with the broader 
international economy. A lot of recessions are 
induced by international financial crises, so if 
ALBA doesn’t have much to do with that 
international system and ALBA countries have a 
stable monetary system themselves, they could 
avoid some degree of financial crisis. However, I 
doubt that the Sucre will protect ALBA. Consider: 
ALBA is a small area economically. ALBA members 
will still trade heavily with the outside world. 
Obviously ALBA nations and the Sucre are not like 
the EU and the euro. Moreover, transmission of 
economic crises is more based upon trade in 
assets than trade in goods. My guess is that 
having a larger currency area shouldn't 
dramatically change the demand for 
dollar-denominated, yen-denominated, or 
Euro-denominated assets. Capital controls would 
much more effectively accomplish that.

To be honest I’m more optimistic about the Sucre 
as a means of fostering economic growth and 
achieving better prices as opposed to protecting 
ALBA nations from financial crises. Consider: 
right now, ALBA nations have low tariffs on U.S. 
goods like cars which can come into their 
countries relatively cheaply. So, ALBA countries 
are not going to start their own domestic car 
industry. In the 1960s Brazil experimented with 
this somewhat and had a well functioning car 
industry for a while. However, they later 
eliminated trading protections and the industry 
went belly up. Since ALBA represents a decent 
sized group of countries which would be fostering 
trade amongst themselves, there would be some 
scope for industrial diversification and ALBA 
nations might produce some things that they would 
normally get from the United States. By adopting 
a new currency, ALBA nations get slightly greater 
leverage to slap tariffs on U.S. goods so as to 
protect infant industries which the left wing 
group of countries seeks to encourage.

NK: There’s a very pronounced political dimension 
to the Sucre: Hugo Chávez has remarked that the 
Sucre “will help us to overthrow the dictatorship 
of the dollar.” Yet, ALBA nations are rather 
insignificant economically at the global level. What are your thoughts?

EK: I think that’s correct --- I don’t think the 
adoption of the Sucre or Pacha for that matter 
will have much of an economic impact on the 
United States. It probably will have a greater 
economic impact on ALBA nations by fostering 
import substitution and industry as opposed to 
pursuing a course of commodity exports. Here’s 
another benefit of a common currency: right now a 
lot of countries spend a lot of money buying 
dollar assets because they’re afraid of a 
speculative attack on their currency. One 
solution to this is to institute capital controls 
which the International Monetary Fund doesn’t 
particularly like. A successful currency union 
could make ALBA nations less subject to 
speculation and as a result these countries would 
be less concerned about their exchange rate 
relative to the U.S. dollar. As a result, ALBA 
nations would benefit as they wouldn’t have to 
invest so much in low-yield dollar assets. Still 
if speculators can force the bank of England to 
lose almost 100 billion pounds in one day back in 
1992, my guess is that the Pacha will not be immune to speculative attack.

NK: ALBA was originally set up to counter the 
FTAA or Free Trade Area of the Americas, the 
corporately –friendly free trade scheme sponsored 
by Bill Clinton and George Bush. Venezuela’s Hugo 
Chávez on the other hand says that the adoption 
of the Sucre constitutes a system of “fair trade” 
which will distance Latin American countries from 
“hegemonic capitalism,” “the neo-liberal 
dictatorship” and the “dictatorship of 
transnational companies.” The Sucre, Chávez adds, 
“will be much more than a currency.” According to 
him, the Sucre system will have four component 
parts: the Regional Monetary Council, the Sucre 
currency itself, the Central Clearing House, and 
a regional reserve and emergency fund. How 
significant a break does this represent with the go-go free trading past?

EK: If the Sucre agreement winds up fostering 
closer economic integration along the lines of 
the EU and not NAFTA, then the new ALBA currency 
could wind up resulting in more fair trade as 
opposed to exploitative trade. Here’s another way 
the Sucre could represent a plus: normally 
multinationals go to Venezuela or Ecuador and set 
up their own companies which get all kinds of tax 
breaks and make profits off exports. Those 
profits are then repatriated to the United 
States. If there’s a common currency however, 
those profits would probably stay in the local 
region. So, a new currency might promote fair trade as well as fair investment.

NK: On the face of it the idea of the Sucre is 
reminiscent of the euro, another regional 
currency which recently came into effect. Yet, 
the Sucre would seem to be more unique in that it 
has been promoted as a common ideological project 
amongst left-leaning nations. Is there any historic precedent for such an idea?

EK: I’m not aware of any currency that’s been 
promoted on the basis of shared ideology, certainly not any left wing ideology


NK: What about the ruble?

EK: That’s a good point. The Soviets exported the 
ruble to all of their satellite areas. But for 
the Soviets, the ruble on its own wasn’t such a 
decisive factor as there was already a centrally 
planned government which decided what the 
satellite countries would produce as well as what 
price they would trade at. In other words, given 
that the Soviet Union could already decide the 
relative prices of all goods, an exchange rate 
was relatively redundant. So, in terms of ALBA 
countries I think the benefits of a shared 
currency are higher because you have different 
governments as opposed to Moscow calling the shots.

NK: Ecuadoran President Rafael Correa, himself an 
economist, hopes that the Sucre and the 
implementation of the new “virtual monetary 
system” could accelerate commerce between 
nations. Eventually, he hopes, such a system 
could be extended to all countries in Latin 
America and use of dollars would be reduced 
greatly. How likely is this to occur?

EK: I think if the Sucre, or the Pacha as the 
case may be, were extended to all of Latin 
America this would reduce the use of the dollar 
and this would have an impact on the United 
States, particularly if Mexico joined the Sucre. 
Let’s face it though: Mexico is going to be 
reluctant to do that. To be honest, we don’t even 
know if the countries that have currently signed 
up for the Sucre will continue to stay on it. 
What would happen if a right wing government came 
to power in one of the ALBA nations? If one ALBA 
country on the Sucre has an economic downturn and 
wants to pursue a monetary policy that will help 
to reduce unemployment, this could lead to 
inflation in another ALBA nation, which in turn 
could spark political conflict. For the time 
being the ALBA nations have relatively similar 
political ideologies and they could set up some 
kind of political institution to govern the 
currency board. But, if one of the ALBA nations 
became right wing I don’t know what would happen.

In addition to disagreements over monetary 
policy, there might also be conflicts over fiscal 
policy. One way for the government to get out of 
debt is by printing money to pay off the debt. 
This causes inflation. This is a very typical 
pattern in Latin America. So, if one ALBA country 
decides it wants to inflate its debt away and 
another country in the currency union doesn’t 
like that idea, then this could give rise to 
political conflict. A country finding itself in 
dire economic straits may need to create 
inflation because otherwise it would go bankrupt. 
Other countries within ALBA meanwhile won’t want 
one of their members to go bankrupt which could 
result in a potential currency attack on the 
entire region. Here’s the key point though: ALBA 
countries that are not experiencing economic pain 
may want to dictate how much debt their fellow 
member can hold as a percentage of GDP. If you 
want to join the EU, you must have a certain debt 
to GDP ratio. How will the ALBA nations bargain 
this out? These are vexing questions. Plus, if 
you really want to have an economic impact on the 
United States and the dollar you’d have to 
involve Brazil, Argentina and Mexico and it’s difficult to see that happening.

NK: Speaking of which, Chávez has invited 
Argentina to join in the Sucre, and over the past 
few years Venezuela and Argentina have cultivated 
an unprecedented geopolitical alliance which is 
based on shared ideological affinities. Do you 
think that if Argentina joined that there could 
be a ripple effect and other countries might be 
encouraged to join? Some might say that if 
Brazil, the true economic juggernaut in the 
region, fails to join that such a currency might lack credibility.

EK: Cristina Fernández de Kirchner, the current 
President of Argentina, is not super popular. She 
and her husband [former president Néstor 
Kirchner] had this idea of alternating power so 
they wouldn’t hit the wall on term limit 
restrictions. In light of recent parliamentary 
elections which resulted in electoral defeat for 
the Peronist party, it’s not clear whether the 
Kirchners can stay in power. If they don’t stay 
in power you can forget the idea of Argentina 
ever joining the Sucre. My guess is that even if 
they do, it’s an unlikely scenario for Argentina.

NK: Some might say that from the very outset the 
Sucre won’t have much clout. Bolivia exports most 
of its goods to other Andean nations such as Peru 
and Colombia which do not participate in ALBA. 
Nicaragua meanwhile exports most of its products 
not to fellow ALBA nations but to other Central 
American nations, the United States and Europe 
where the dollar and euro are paramount in 
commercial transactions. What are your thoughts?

EK: That’s true. But similarly a lot of countries 
in the EU don’t just trade amongst themselves but 
also with the UK, Switzerland and the United 
States. So, I don’t see that as being a huge 
barrier. In the case of Nicaragua it could be a 
little weird since the Central American nation 
doesn’t do that much business with other ALBA 
nations. So, there may not be a lot of benefits 
but conversely getting on the Sucre might imply 
little financial and political risk.

However, once the currency goes from being 
“virtual” to real and ALBA nations ditch their 
own currencies for the Pacha these costs may go 
up as I explained earlier. The bottom line is 
that as long as ALBA countries are not trading 
amongst themselves that’s Ok: if it’s a virtual 
currency like the Sucre they still maintain their 
exchange rates with the other countries. Once 
they swap their currencies entirely however 
they’re forced to have the same exchange rate as 
other ALBA countries. Normally, if Nicaragua had 
a lot of inflation it would want to devalue 
relative to its other trading partners in Central 
America. But in the new milieu, Nicaragua 
wouldn’t be able to do that. This could really wind up hurting its exports.

NK: What types of protections would you advise 
for the ALBA nations moving forward?

EK: My concern would be defending the incipient 
currency from speculative attacks. There’s a very 
easy way to prevent this: you need to implement 
currency controls. In other words, don’t let 
people take money out of the currency except for 
trade-related actions and do not allow any 
speculation. There’s no way for ALBA to move 
ahead with a currency union without acting on 
currency controls. The International Monetary 
Fund won’t be too happy about that but I don’t 
think these left wing countries care about the IMF anyway.

NK: The situation in Ecuador is positively 
ironic. Up until recently the Andean nation’s 
currency was called the Sucre, which it then 
ditched for the U.S. dollar. Now Ecuador is going 
back to another Sucre. How do you think life will 
change for Ecuador and Ecuadorans as the country 
moves to the Sucre as opposed to the dollar which 
had been embraced by the country’s economic elite?

EK: First of all, let’s look at some of the costs 
of using the U.S. dollar. When the U.S. inflates 
currency and prints dollars to pay off debt, 
that’s a tax because prices go up and the value 
of money goes down. Who pays that inflation tax? 
In part it’s the Ecuadoran people who hold 
dollars. Who benefits? The U.S. government as it 
gets to pay off its debt. So, these financial crises devalue Ecuadoran money.

But now the new Sucre monetary board, or 
eventually the Pacha board, could redistribute 
money between countries as opposed to having it 
filter back to the United States. Also, once 
Ecuador goes on the Pacha it’ll be easier for the 
Andean nation to adjust its exchange rate than it 
would under the dollar. As long as Ecuador sticks 
to the dollar, it’ll be beholden to whatever U.S. 
monetary policy happens to be. Once Ecuador’s in 
the ALBA currency union it has a voice and can 
have a much greater impact to shape its own finances.

There are other political benefits to not being 
on the U.S. dollar. Take for example the case of 
Panama. When George H.W. Bush wanted to get rid 
of military strongman Manuel Noriega, he banned 
the export of U.S. dollars to Panama which caused 
a recession. That leverage is still there 
potentially with Ecuador. George W. Bush never 
entertained the possibility of putting the 
squeeze on Ecuador as he was distracted in other 
parts of the world. But, under other 
circumstances the United States might have exerted pressure.

Despite all these problems, there are some 
benefits to having ties to the U.S. dollar. If 
you’re on the dollar this leads to stability in 
price levels which could be lost once Ecuador joins a new currency.

NK: One key question will be whether private 
sector exporters in ALBA nations will have 
confidence in the new Sucre for it is they who 
dominate international trade. What are your thoughts?

EK: If the private sector is forced to trade in 
the Sucre or not trade, then they’ll use it


NK: In all of these countries like Ecuador and 
Venezuela, it’s precisely the right opposed to 
leftist governments which is controlling the exports 


EK: You could wind up with a strange situation in 
which the exporters are skittish about the new 
currency and either reduce exports or send their 
goods to non-ALBA countries like Colombia. In 
that case, the new currency union would not 
foster more intra-ALBA trade but the total 
opposite. If there’s greater state control over 
exports, as in the Venezuelan oil industry, this all becomes a moot question.

NK: Professor Kaplan, thank you very much.

EK: Thank you.

Ethan Kaplan is a visiting Professor at the 
Center for Global Thought and the Economics Department at Columbia University.

Nikolas Kozloff is the author of 
<http://www.amazon.com/exec/obidos/ASIN/0230600573/counterpunchmaga>Revolution! 
South America and the Rise of the New Left 
(Palgrave-Macmillan, 2008) Follow his blog at 
<http://www.senorchichero.blogspot.com>senorchichero.blogspot.com




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