A weak currency makes national products competitive. Exports go up and the GDP increases. The other side of the coin is the increase in inflation. Most raw materials are bought in dollars, a depreciation in the value of the currency of one country in relation to the dollar means an increase in the price of oil, of gas, but also of soya and of wheat. Thus exports increase as does inflation. In theory the invisible hand of the market should, over time, mean that the right value is given to each currency. In practice, the currencies are used by the governments to distort economic relations between States. It’s what is called “The currency war”. The International Monetary Fund (IMF), since the beginning of this year, has been trying to define some rules to establish the value of the currencies, but it has been ignored by everyone.
The emerging countries of South America and in the East are at the centre of this war, on whose outcome their economic survival depends as does ours. Brazil has reacted to a collapse in exports, due to the increase in value of its currency, the ‘real’ by devaluing it. In 2010 Brazil’s balance of trade with the United States went from plus 15 billion to minus 6 billion dollars. In order to continue to produce and export it has accepted an increase in inflation with all the consequences that this brings, and in particular the impoverishment of the most vulnerable social classes. For at least a year, China has been keeping the value of the ‘yuan’ artificially low in spite of the protest of the whole of the Western world and Japan who are accusing it of unfair competition. If the value of the yuan were to go up significantly (as it should) the Chinese GDP would go down with catastrophic effects on employment. The Currency War is like a massive game of “Risk” in which each move causes a reaction in every other part of the world map. In South America, Chile, Columbia, Peru and Mexico are in reality devaluing their currencies. It’s a massive race to go lower with global impoverishment. A war in which Italy is playing the part of the clay pot among the iron pots. It is tied in to the euro, whose value is much higher than that expressed by its economy that has basically been in recession for 10 years. It has a public debt that is going towards 2,000 billion euro by the end of 2011. It cannot be devalued to improve exports; it cannot invest because of the cost of the interest payments on the debt (this year we will pay about 80 billion in interest, equal to about four substantial finance bills.).
Italy’s exit from the euro, if it were to happen, with a new ‘lira’ and the subsequent devaluation, would change nothing. We would find ourselves with double digit inflation and no exports. The top countries in terms of exports apart from China are in fact the United States, Germany, the Netherlands, and Japan. They are exporting innovation and technology, what would we export? No longer public debt and we have already exported the "made in Italy" companies. Perhaps we will abandon the lira for the ‘scec’, a local currency, for the town, for the neighbourhood, for the condominium.