[Viewpoint] Currency disputes and Korea’s roleOne of the specialties of the United States is foreign currency bashing. Major exporters to the United States are often the subjects. When they perform well, the United States pressures them over currency policy, often using as justification the grandiose goal of rebalancing the global trade order.
Korea often took much of the bashing. In the 1980s, Korea’s profits through trade with the United States grew rapidly, and former officials remembered that blunt interventions were frequently made. A former Finance Ministry official who was in charge of foreign currency affairs said, “At some times, I had to consult with my U.S. Treasury counterpart about the least number below a decimal point.”
“Well, it was called consultation, but they presented numbers and pressured us to accept them,” he added. “Once we resisted, and we were summoned all the way to Hawaii.”
Other countries also knew about U.S. arrogance but remained tight-lipped about it. They did not want to anger the United States by talking about such practices.
The United States gained the most through bashing the Japanese yen. The Plaza Accord of September 1985 is an example.
At the time, the Japanese economy was rising like the morning sun. It saw profits in trading with almost all major world economies. Secretary of the Treasury James Baker invited his Japanese counterpart to the Plaza Hotel in New York City and pressured Tokyo to increase the value of the yen. The United Kingdom, Germany and France also participated in the talks.
At the time, Japan had no power to resist. Only a few months after the Plaza Accord, the Japanese yen appreciated - from 250 yen to a dollar to 149 yen to a dollar.
The outcome of the revaluation of the Japanese yen is well known. Giant bubbles formed and a seemingly endless fall soon followed.
Money flows into Japan and Tokyo’s stock markets saw about a 300 percent increase over three years. In 1988, Japan owned the world’s top 10 banks.
Real estate property prices skyrocketed. At times, they went up an average of 70 percent a year. If all the real estate in Tokyo had been sold, the money would have been enough to buy the entire mainland U.S.
But that was it. Once the bubbles popped, there was nothing to be done. Since the 1990s, Japan has had two lost decades. On the other hand, the United States rewrote the history of manufacturing and the new era of Pax Americana began during the Clinton administration.
In the 2000s, the new game for the United States was bashing the Chinese yuan. The key player was the George W. Bush administration’s Secretary of the Treasury Henry Paulson. A former Goldman Sachs executive and a veteran of China affairs, Paulson handled the issue with expertise.
Whenever he went to China, the value of the yuan went up, so the international financial community even came up with the term “the Paulson effect.”
As the U.S. trade deficit grew, the pressure on Paulson also grew. When he first took office in July 2006, he spoke softly, only saying that China should contribute to the efforts to resolve the global economic imbalance. However, he changed his tune in 2007.
He pressured Chinese officials, saying they were acting slowly. In October of that year he said, “Accelerating the rate of appreciation and introduction of flexibility will help China deal with the imbalances that have grown in the economy and will make monetary policy much more effective in responding to inflation.”
In April 2008, he used the words “warning” and “risk,” but China’s response remained unchanged. When pressure reached a peak, China raised the value of the yuan a bit. When the pressure died down, China just left the matter alone, and U.S. frustration grew.
Washington didn’t give up. More pressure was applied this year, and U.S. President Barack Obama is leading the initiative. Last week, he urged China to adopt a “market-oriented” exchange rate policy in the second offensive of 2010.
Beijing rejected the demand. Chinese Premier Wen Jiabao said that his country would not yield to external pressure to revalue its currency.
Washington wants more appreciation, faster, just as in the case of Japan. China said the process will be “slow and small.” It does not want to become another Japan.
There doesn’t seem to be much room for compromise.
This is an opportunity for Korea to step up. It should not just wait and see how the exchange rate of the Chinese yuan will change. China and the United States are the first and second largest trade partners of Korea. This is not a matter of other people’s business.
This year, the Group of 20 Summit will be hosted in Seoul.
Let’s make this year the start of rebuilding the global financial order.
Creating a Seoul consensus, which will include both the positions of Washington and Beijing, will be the task of the Group of 20 chair country.
This is also a project to elevate Korea’s prestige.
We should not just give up by thinking that we are too small to do this. Unless we rid ourselves of such a mindset, there will be no future for us as a superpower. After all, being a superpower is not about the size of a country’s territory.
*The writer is the business news editor of the JoongAng Sunday.
By Yi Jung-jae