The Tehran summit and the quest for new currency systems

  • 06 Eylül 2018 Perşembe

The trilateral summit between Turkey, Russia and Iran over the weekend will have both political and economic repercussions like all meetings of this kind. The three countries will discuss the Idlib question, as well as regional economies and alternatives to the dollar-based currency system. Unless the petrodollar system in the Middle East and the Gulf region ends in a real sense, the warfare will not completely end, either.

Unlike before, the U.S. does not have a free hand in the Middle East, including Syria, today. And the balance in the region has come to be set mainly by the initiative of countries and peoples in the region as it should be. Turkey is a very strong player in the region and the invasive mechanism created by the U.S. through terror organizations, like the PKK and Daesh, under the cloak of supervision is being broken with Turkey’s presence in the region.

As for the relations between Turkey, Iran and Russia, each has different interests and strategies. However, regional cooperation among them is in the foreground at the moment. Cooperation is needed in order to ease the war in the region and to stop the flow of refugees. In this process, not just Turkish but the global public opinion has identified the serious connection between the U.S. presence in the region and PKK-Daesh terror. From the beginning, the U.S. has been maintaining a proxy war through these terrorist organizations and wants to maintain its old hegemony this way.

However, we have left behind the eras where the direct invasion was an instrument of hegemony and exploitation. Likewise, the U.S. and its notorious partner should acknowledge that we have also left behind the periods where hegemony was ensured through proxies and terrorist organizations.

It is no secret for the world that the arms provided to the PKK-affiliated People’s Protection Units (YPG) have not gone to the fight against Daesh, because these organizations go hand in hand in the region. Moreover, the era of satellite microstates, family and tribal oligarchies, and much less the proxy terrorist organizations have ended too.

Since the withdrawal of the Ottoman Empire from the region, imperialism has ruled it through family and tribal oligarchies and satellite microstates, seizing the oil and natural resources of the region. Now, a period of strong states is emerging in the Middle East. It is inevitable for Turkey, which is closely affected by the regional instability, to have a de facto presence here as an element of stability.

Undoubtedly, this is the harbinger of a great transformation for the region’s politics and economies. In this sense, the economy is an important agenda item in all the summits held by regional countries, along with Turkey. Particularly, President Recep Tayyip Erdoğan’s proposal of “trade in local currencies and a new trade regime,” has and will dominate the agenda of all regional summits.

In that sense, trade in local currencies deserves a much deeper discussion. I think that we should not approach this issue in a shallow manner of trade accounting, where basic reserve currency ensures the balance sheet balance (zero-sum) at the end of the day.

Before anything else, this issue should be addressed as the main starting point of the quest for a new currency system that will go beyond the Bretton Woods System. Today, everyone agrees that the dollar has lost its function as a basic reserve currency and, on the contrary, it is a crisis dynamic. However, leaving aside the theoretical quests, there is not much progress in practice. The euro that emerged earlier in the century, however, could just be a crutch for the dollar-based system and was not an alternative. Of course, this is mainly because of the political and economic crisis facing the European Union. While the euro has extended the life of the Bretton-Woods system a little longer, it has also dragged Europe into a deep crisis in doing so.

Indeed, the mastermind of the Eurozone project is Robert Mundell. During a seminar at the International Monetary Fund (IMF) in 2001, Mundell asked where the global monetary system was headed and proposed a new currency which would be under the IMF’s supervision. This reserve currency would be fully convertible into the currencies that represented three basic developed regions of the U.S., the EU and Japan. In other words, it would be convertible into the U.S. dollar, the euro and Japanese yen in the first phase. According to Mundell, the new reserve currency under the IMF’s supervision would be named Dey, formed of the initial letters of the aforementioned three currencies. However, the Dey was a transitional currency. Underscoring that a real global currency would be inevitable at the end of the transitional period, Mundell suggested a dominant currency named the “Intor” to be created by the world central bank.

Intor was a combination of the words “international” and “or” which means gold in French. So, Mundell suggested that the new currency, no matter how strong it would be, would be an international one far from being based on a nation-state, and it would have economic rather than political power. The emphasis on “gold” in Intor emphasized that the currency would have an economic, i.e., “real” basis.

The main emphasis of Mundell’s suggestion applies better to the present time. However, Mundell’s new currency was based on the U.S., the EU and Japan. I must note that this basis is invalid today. There is a need for a new structure that highlights all G20 economies, instead of a transitional period based on the dollar, euro and yen.

We are entering an era where trade in dollars and the dollar reserves of central banks are gradually declining. On the occasion of the Iran summit, I must say that the bloodshed in the Middle East will not stop unless the petrodollar system completely ends. For this reason, Turkey, Iran and Russia should create effective swap mechanisms that will close the account at the end of the day outside of the basic reserve currency, dollar, through China and Europe. In the first phase, the euro and the yuan can temporarily undertake this function. I think we have now passed the threshold of theoretical debates.

Another important point is the issue of change and transformation that the Turkish economy will undergo in this process. At this crossroads, Turkey should determine leading areas of the economy in terms of change and transformation without leaving any room for discussion. Also, the directing power of the state should focus on this. There is no spontaneous market, but a regulated or unregulated market. The market regulated by the state is the only real and competitive market. Let’s never forget this fact.