The Dollar Mirage

Some years ago in Dubai, out to dinner, the barman explained how lucky I was because tomorrow all the drinks prices will be doubling. The place wasn’t cheap, or very good, so I asked why. “Simple” the barman said, they only had half as many customers as the year before, so to make the same profits they needed to double the prices. Genius.

And it is that perverse logic which has led to the U.S. printing more money in the past year than it has done since 1945. Combine the $2.2 trillion stimulus bill the government passed in May, along with Federal Reserve digital money-printing, and the U.S. central bank balance sheet has swelled by more than $3 trillion, roughly double the US Dollars in circulation before the pandemic.

Now I’m no economist, but when the Weimer republic tried this economic model in the 1920s, prices ran out of control. For example, a loaf of bread, which cost 250 marks in January 1923, had risen to 200,000 million marks in November 1923, and by Autumn 1923 it cost more to print a note than the note was worth.

Now I’m not saying that the Dubai bar, or the U.S., have got it wrong. And certainly the economic stimulus in the U.S. has bolstered the economy. But when you find out that there are no more Yuan in circulation today than there were before the crisis, it doesn’t take Adam Smith to work out what is likely to happen in the long term to the relative values of the currencies.

So where does that leave a world reeling from the Covid pandemic, with the World Bank suggesting that “Over the longer horizon, the deep recessions triggered by the pandemic are expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages….Since 2020, businesses might have found it hard to service debt, heightened risk aversion could lead to climbing borrowing costs, and bankruptcies and defaults could result in financial crises in many countries.”

I would suggest that, after the current Dollar orgy subsides, investors will be looking for access to high growth economies, with low risk and volatility. They want the Delta, but not the peril, and that is where the Astana International Financial Center (AIFC) comes in. Recently described as a silent revolution, the AIFC provides the world with a safe harbour, and a gateway to the exciting opportunities in Kazakhstan, and beyond into Central Asia. There is no other environment in the region that provides such access to success, whilst diminishing risk and, for that reason, it is time to start shouting about AIFC from the rooftops: Letting the world know that when commerce starts, once again, to look for real opportunities rather than those derived from speeding up the printing presses, they should be looking to Central Asia and, in particular, the AIFC.

And, perhaps the broader and more challenging question, is whether the Tenge should remain largely pegged to the USD Dollar, which seems almost certain to revalue in the medium term. Or whether, the seemingly more stable and higher returning Yuan would be a better bedfellow – a discussion for another day.

Mark Beer is a writer, academic and lawyer. He is the co-founder of Seven Pillars Law in the AIFC, Chairman of the Metis Institute, a visiting fellow at Oxford University and a visiting professor at the Shanghai University for Political Science and Law.

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