Asia's meltdown follows the money What reality bought with currencies of air


NOW THAT Asia is becoming the economic wreck foreseen by the canny, talk of reform has risen from the moot to the academic to the urgently topical.

Papers by obscure analysts at Treasury are doubtlessly nesting inside diplomatic pouches, and the notion of geo-financial overhaul on the scale of the 1944 Bretton Woods agreements is no longer just chitchat over Campari at Geneva's Hotel de la Paix.

Prescriptions teem.

Asian banks are overexposed weaklings; the cure is fatter capital requirements.

Asia's corporations compete with its spy agencies in obfuscation and opacity; lucid accounting would answer.

Asia has few workout protocols for dud companies; expect bankruptcy codes to rise across the Pacific Rim.

Those are the easy calls. More contentious will be proposals to control global capital flow and their ideological opposite: ending insurance against dumb loans by Citibank and its kind.

But many analysts think these are all sideshows. At the germ, they argue, Asia's crisis is a currency crisis.

Promiscuous banks and dishonest bookkeeping become a planetary problem only when a region's assets suddenly lose half their value against world yardsticks.

Seoul, with its fungus of skyscrapers, might or might not have been overbuilt when 900 South Korean won could buy a dollar. Seoul is overbuilt to a frightening degree now that $1 is worth 1,400 won -- especially when landlords who collect rent in won owe mortgages in dollars.

The Fed's support of the crashing Japanese yen last week was the latest attempt to bind the world monetary web. It has grown tattered in half a century.

The Bretton Woods setup was gold-based and inflexible, cut for a world of insular economies and viscous capital. But as early as 1971, cross-border trade had grown boisterous enough to dislodge the anchor.

President Richard M. Nixon closed the gold-exchange window that year, and since then the world's money system has floated free, referential to nothing but faith, its own chaotic tides and King Canute-like political meddling.

Gold fanatics argue that Nixon launched the flying inflation of the 1970s and 1980s, and the accelerating disinflation and deflation that followed. A tangible money base never would have allowed consumer prices to triple from 1965 to 1985, they say.

Currency reformers see divergent challenges. They must account for money that crosses oceans at light's speed, yet they must mind national sovereignties. New systems must be stable but not sclerotic, flexible but not limp.

Much thought concerns regions. As the world gathers into four or five trading blocks, analysts are again talking about continent-wide currency setups that would stay rigid internally but bump and slide against each other. Europe's success or failure at monetary union will chart that idea's future.

But talk of regionalism begs the anchor question. What should a currency intrinsically be worth? Should we rely on fallible politicians and central bankers to guard national units of account? They haven't done too great a job in Asia.

Star mutual-fund manager Mark Mobius proposes an Asia-wide gold standard. Another set of experts, led by Steve Hanke of Johns Hopkins, offer this age's next-best thing to gold: the U.S. dollar. Dollar-stocked currency boards would lend economic confidence to Asia, Hanke argues, and give governments breathing room to fix banks and bookkeeping.

True, the dollar too is subject to people, not metal. But America's economy-minders have shown up their foreign peers lately.

Meanwhile, Asian currencies continue their slow, ugly dive. The yen slides into line with the weakling baht, won and rupiah. China, which helped cause this spiral by devaluing seven times since 1980, prepares to renew the race to the bottom by doing it again.

The U.S. trade deficit scored a record in April as Asians became unable to afford our products and as their products became screaming bargains for us. With Asian currencies attached only to air and to the fiat of besieged politicians, expect more deficit records.

Pub Date: 6/21/98

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