Integration in the Global Economy
New Horizons in Money and Finance series
Edited by Suthiphand Chirathivat, Emil-Maria Claassen and Jürgen Schroeder
Chapter 6: The East Asian exchange rate dilemma and the world dollar standard
Ronald I. McKinnon 6.1 INTRODUCTION In the realm of economics, the term ‘globalization’ refers to the growing interdependence among countries in cross-border flows of goods, services, capital and technical know-how. At first glance, the case for globalization in East Asia, as elsewhere, seems to be just a more general version of the case for freer trade. Moreover, we have persuasive theorems showing that welfare generally (although not necessarily that of particular individuals or firms) increases as the ambit of trade expands. Indeed, the formal theory underlying the advocacy of free trade has it that small countries are the biggest gainers. Outside the United States, why then should globalization make so many people in smaller countries – and even larger ones like China and Japan – so uneasy? The enhanced hegemony of the United States is a prime source of international uneasiness in the new millennium – just as British military and financial hegemony made other countries uneasy with the spread of freer international trade in the 19th century. In today’s military terms, there is just one superpower that sends gunboats – i.e., aircraft carriers – to keep the peace in faraway places, at least where its vital interests are concerned. There is also the invasive crass commercialism of multinational firms, mainly American, which non-Americans see as a threat to their traditional way of life – as when French farmers set fire to MacDonald’s hamburger stands. Other countries, particularly regimes that force their people into subservience through a blinkered religion, see foreign influences undermining national cultures. However,...
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