THE FUTURE OF MONEY Bernard A. Lietaer - library.uniteddiversity ...

activities of a casino, the job is likely to be ill done.' Although over
half a century old, John Maynard Keynes's opinion has never been as
appropriate as it is today. Furthermore, currencies have now become
the ideal speculation tool (see sidebar).
The bulk of the speculative volume is due to banks' own currency
trading departments. However, it is predictable that the hedge funds
- mutual funds specialising in currency speculation - will be the ones
that will bear the brunt of the public relations backlash if a global
meltdown occurs, as they are the 'last kid on the block'. In all
financial crisis - from the Dutch tulips in 1637 to the US stock market
crash of 1987 - it is invariably the most recent financial innovation
which bears the brunt of the blame.
Figure P.3 provides a synthetic overview of the currency flows
which triggered three crises between 1983 and 1998. A monetary
crisis can be seen as the result of sudden ebb of the global cash flow
out of the target country, brutally reversing an earlier inflow.
Notice that the scale of the swings between monetary high and low
tides keeps growing - they mirror the increase of speculative flows in
Figure P.2. It took 13 countries in 1983 to produce a swing of around
830 billion between the last inflow and the outflow. Mexico was hit
by a similar swing in 1995. Barely three years later, the Asian crisis
saw a swing of well over $100 billion between 1996 and 1997. These
swings are the consequence of massive speculative activity.
Why does speculation on currencies happen?
This extraordinary build-up of speculative activity can be explained
by three cumulative changes over the past decades:
1 A Structural shift: On August 15, 1971, President Nixon
disconnected the dollar from gold, inaugurating an era of currencies