BY JOSE LUIS CORDEIRO
TRUE SOVEREIGNTY should reside in the citizens and not in the politicians. The case of monetary policy is one of the best examples. Politicians continuously talk about the importance of monetary sovereignty so they can control the currency and manage the economy.
So one has to ask: What currency? What economy? The answer is clear: The currency and the economy of the politicians themselves, who live off printing money and using that for their own purposes. That's why politicians prefer having currencies with patriotic names and symbols, so they can fool the people through demagoguery. However, if you ask the citizens directly, they prefer a strong currency like the dollar and not a weak one like the peso or other local currencies.
Many economists also deserve much of the blame for the deterioration of monetary policy, since they have created the terms of the debate used by the general public. When it comes to sugar, iron or shoes, economists have mainly focused on the benefits for consumers. The economists have researched what consumers want and how the market system can achieve the best and largest offer.
The economists' preference for free trade and competition is due to the emphasis on the well-being of the consumer. Free trade and competition enable consumers to find the best possible products; and thus consumers can be relieved of inferior goods and services.
In monetary policy, however, the majority of economists have focused on the well-being of the supplier: the government. Instead of asking what consumers want, the economists have focused on what the government wants. They've treated the economy, through monetary policy, as something
that should benefit the government (the producer of the money) and not the citizens (consumers of the money).
That's why many economists have promoted (or at least accepted as legitimate) the monetary monopoly and restrictions, exchange controls, legal and exclusive privileges for the local currency and state central bank systems. The results of this erroneous monetary policies have varied from fairly harmful to almost fatal, as in the case of various hyper inflations.
The disconcerting contradiction between monetary policy and the free market is a terrible inconsistency in the world of economics. One way to manage such a contradiction is to deny that it exists, claiming that the government reflects the wishes of the citizens, or at least the majority of the population. However, even in the most democratic countries, this vision of government is naive. Interest groups always try to influence public policy to achieve privileges that benefit a minority at the expense of the majority. In fact, politicians are the first to benefit as producers of money, in addition to being the only group that decides its own salary and later produces the money to cover their expenses at the expense of everyone else.
MONEY IS SIMPLY a commodity for trading other goods and services, with its own producers and consumers. A better way to solve the above dilemma is changing the terms of the debate, emphasizing the benefits for consumers instead of those of the producers of monetary policy. Monetary policy, as any public policy in general, should have as its goal to benefit consumers, who obviously are the majority. A consumer of monetary policy is anyone that uses money: Practically the whole population. What do consumers want from monetary policy? The best way to find that out is to let citizens use the currency they prefer under a free market and competition of currencies. However, even under current conditions in Latin America (far from free markets and currency competition), we all know very well what currency people prefer. Consumers want little inflation and low interest rates. They also want a currency that can be used internationally without any fear of regulations or controls.
In Latin America, there's already a currency that offers consumers what they're looking for. That currency is the dollar. The appeal of the dollar can be seen both by its extensive use within all the Latin American economies (from street vendors to the big traders and even the guerrilla and drug traffickers) and its importance as currency for international trade. The dollar is not perfect, but it has the best historic record of any currency on the American continent. If the citizens were able to freely choose what money they wanted to use, the majority of Latin Americans would probably adopt the U.S. dollar. That way people (consumers) could protect themselves from the recurring monetary errors of their governments (the producers of the money).
In Latin America, as well as other parts of the world, the thinking about monetary policy has to change in order to promote the population's economic development. The key is the well-being of the consumer and not the producer of the money. Monetary sovereignty should come from the citizens and not the politicians. No country benefits from high inflation, high interest rates and exchange instability. The Latin American experience shows that those who are hurt are the citizens - the consumers of the money produced by irresponsible governments.
Venezuelan economist José Luis Cordeiro is the author of the bestsellers ¿Pesos o dólares? (Mexico), La Segunda Muerte de Bolívar... y el Renacer de Venezuela (Venezuela) and La Segunda Muerte de Sucre... y el Renacer del Ecuador (Ecuador). He can be reached at [email protected]
Originally published in December 3, 2001