The corona pandemic is an extreme challenge for medicine, politics and business, but also for the global monetary system. The various national, but almost global shutdowns largely brought the global economy to a standstill. The current easing is causing shops to reopen, but people’s enthusiasm for buying is low. And so, as the German finance minister put it, the states reach for “bazooka” and throw money at the people. The helicopter money signed by the American president or the government stimulus packages such as those in France or Germany mean enormous public debt.
John Mainard Keynes, the father of the monetary policy idea of government investment in times of crisis, is likely to turn around in the grave in view of the almost uninhibited increase in money in Covid-19 countries. After all, he had fought for global financial stability in 1944, as agreed by 44 states in Bretton Woods. Keynes had dreamed of a virtual world currency on which all other currencies should be based; but the dollar as the key currency based on a fixed gold price seemed just as safe at the time. As is well known, this went well for almost three decades. But then the expansive US monetary policy stretched the curve, the proverbially safe gold in Fort Knox no longer corresponded to the printed dollar amounts. This was followed by the “Nixon shock”, the legendary breach of contract by the then US President, since which exchange rates have flourished.
Even after the financial crisis in 2009, there were considerable doubts about the reliability of the government collateral. The euro, the common currency of countries with different economic strengths, came under pressure. The discussion about corona bonds is now just a reissue of the arguments and quarrels about euro bonds at the time, just not as emotional. somehow the ECB’s monetary policy has led to stability, surprising for some, after all.
The remaining foundation of state currencies is crumbling
The real economic conditions have changed significantly in recent decades. This cannot withstand any form of money, no monetary system as an abstraction of the real economy in the long run. The situation is becoming more fragile and fragile, and at some point the “quantitative easing.”“, an expansive monetary policy as a stimulus for a crippling economy, no longer able to bridge the gap between what money represents and what actually exists in value. In short: the remaining foundation of the state currencies is crumbling.
Since 1973, the dollar had had its day as the leading currency, D-marks and yen, later the euro, and more recently the Chinese yuan as well. This is also what the trade wars of recent years have been about, where the USA and China have fought for supremacy under the guise of nation-state selfishness.
Covid-19, the virus that started in China and is currently peaking in the United States, not only reveals the weaknesses of human health and government health systems, but also the weaknesses of the financial markets. Whom can you rely on? The two opponents in East and West are similarly over-indebted, similarly unreliable in their communication, and equally unstable in their politics. Who can, who do we still want to trust?
Now the European Union with its 500 million inhabitants and four of the seven strongest industrialized nations could emerge as the laughing third party if national rivalries did not wearily weaken the monetary union from the inside. The national economic stimulus can only cover the cracks with difficulty.