Currency devaluation and Keynesian economics

“There is no subtler, no surer means of overturning the existing basis of society than to debauch (devalue) the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose…”
– John Maynard Keynes, The Economic Consequences of the Peace (1919).

President Muhammadu Buhari’s insistence in Paris a couple of weeks previously, much like he had in 1984, that “devaluation would destroy the (Nigerian) economy” is uncanny in more ways than one. First, it would seem that those who have the moral courage, in the face of overwhelming opposition, to insist on policies that would redound in the greatest good for the greatest number ultimately get elevated to power, against all odds.

Presidents Obama and Buhari are contemporary examples: Barack Obama practically rewrote the books on United States of America’s politics to emerge U.S. first black president; most ultra-conservative whites, even in the last months of the Obama second-term presidency still think it a mere dream. The little-known Chicago first-time senator had had the rare courage to vote against the infamous Iraq war, (he had in effect voted against the U.S. all-powerful military-industrial-community; little else accounts for why the son of a humble Kenyan immigrant roundly defeated a big white name (Clinton) for the U.S. presidency.

Muhammadu Buhari had exhibited similar courage in standing against naira devaluation back in 1984; (he had stood against Nigeria’s formidable multinational financial institutions); this may largely explain why he emerged winner of Nigeria’s 2015 presidential election, against all odds. I didn’t think the platform on which he had contested stood a chance against the biggest political machine in Africa.

Second, President Buhari’s Paris homily on naira devaluation replicates in every material particular the immortal 1919 homily of that English Cantabrigian economist, John Maynard Keynes (1883-1946) whose ideas still hold sway in modern liberal democracies. The great economist had headed the technical team of British delegation to the post-World War I Paris Conference, of which principal objective was to bring both the conquering and conquered nations to a table and agree on the terms to reconstruct and develop the theatre of World War I, Europe. The Treaty of Versailles was the end-product of that conference. Germany, symbolising the conquered nations was to pay as-yet-to be determined reparations to the conquering nations.

The United States of America, which had been the principal beneficiary of World War I by providing finances and selling weaponry to the combatants in Europe, now had to provide the finances to reconstruct and develop Europe. The terms of those finances were in essence unilaterally determined, much to the discomfiture of the conquered nations.

Furthermore, by the terms of the Treaty, Germany was to cede its prized colonies to the big three conquering nations, Britain France and Belgium.

Finally, the proposed terms of trade between the conquered and conquering nations were to have the effect of deeply depreciating the currencies of Germany and her former allies. Surely, the Treaty of Versailles was as vindictive a document as it was shortsighted in its vision in an already highly inter-dependent world. In a classic display of rare courage, Keynes voluntarily resigned his membership of the conference while strongly condemning the terms of the proposed Treaty. Upon returning to England, Keynes settled down to write his considered opinion on the Treaty of Versailles; the proceedings thereof culminated in a best-selling book, The Economic Consequences of the Peace.

Rather prophetically, Keynes concluded that “In the Treaty of Versailles lay the unwitting goad for an even more formidable resurgence of German autarchy and militarism.” He had been as right as rain. By April 1921 when the Reparations Commission finally fixed Germany’s liability at $33,000 million, the latter’s steeply depreciated currency had already decided for the country the direction to go: make a pretence of being in earnest to pay reparations while aggressively pursuing a massive military build-up in preparation for a global war. Germany did exactly that; the result was World War II, (1939-1945). The United States of America was among the combatants that time round.

By 1941 the would-be conquerors where already contemplating the post World War II years; a number of conferences were set up, including one on the all-important issue of reconstruction and redevelopment. Expectedly, the prophet who foresaw World War II attended that conference, though now in the sunset of his life with a health that was less-than-robust, Keynes regularly flew over to the U.S. to attend the conference on
reconstruction and development. The conference wound up its sessions in Bretton Woods, New Hampshire, USA in 1944.

An International Monetary Fund (IMF) and an International Bank for Reconstruction and Development (now the World Bank) were to be established to ensure two-way flows of money in international transactions.

Tragically, the adopted executive architecture for the “Bretton Woods Institutions” rendered the original goal of setting them up utterly unattainable. The executive organ of both the IMF and the World Bank are constituted not in terms of “sovereign equality” but according to a highly complex system of weighted voting power. This anomaly confers the super powers, and preeminently the U.S. control over the IMF and the world Bank; so the conflicts-invoking one-way flow of money in international transactions persists through the similarly complex instrumentality of currency manipulations, tariffs; trading embargos, etc.

In analysing why the super powers are seemingly adamant on retaining unsustainable terms of international transactions, it is necessary to backtrack to the pre-World War I years. Before 1914, Britain, France, Belgium and their allies had enjoyed unparalled trading advantages in
Europe, Asia and Africa. The war years (1914-1918) greatly diminished the big three European nations and their allies’ capacities to meet their trading partners’ need.

The latter inevitably had to make a virtue of necessary: they found alternative sources for their needs. At the end of hostilities in 1918, the conquering nations were rudely taken aback to realise that their trading empires had drastically shrunk.
Nkemdiche, an engineering consultant, wrote from Abuja