A quick economic lesson. But one that really matters, so please bear with me.
For better or worse, the global economy runs on credit. Countries with their own currencies are essentially able to create fresh money from nothing. They get to turn that tap into a gusher once their money becomes the most trusted on earth, or the global “reserve currency”. That title currently rests with the US Dollar and is a big reason why Washington has been able to save the nation through a Quantitative Easing strategy.
But the volatile Donald Trump’s actions are already starting to threaten the US’s unique reserve currency status. This reality is fully appreciated by China, whose RMB is the closest challenger. For obvious reasons, it’s a mantle Beijing desperately wants. The Chinese cause was helped by President Xi’s stirring speech in Davos. It turned his country into a surprise rallying flag for those who put global collaboration above isolation.
When elephants fight, the grass gets flattened. For smaller countries like SA, the best defence in this newly uncertain but still credit-driven world is protecting its own credit rating – something far more important to a nation’s well being than its natural resources. Finance Minister Pravin Gordhan and his team at the Treasury understand this. So should we all. And act decisively against any action that threatens to destroy it. Economic idiocy is simply unaffordable.
