A New Currency Bloc – The Chinese Question

Estimated Chinese Holdings

Stumbling Block

In any new world financial reform proposal, the Chinese voice will be very important. After all they are the world’s largest creditor nation! They have US$2 trillion worth of IOUs with them. Of course, the composition of these US$2 trillion Chinese reserves is a state secret. And after the Chinese come the Japanese with US$1 trillion of reserves. Russia, India and Brazil total to another US$1 trillion.

Given the Chinese history in the last 100 years, the Chinese will not agree to any ‘hare-brained’ scheme by ‘tin-pot’ dictators, who are sitting on some raw materials – and think that the future belongs to them. The world has so many of this variety, that it does not require me to be specific.

Even a serious attempt by the EU, with the Euro, has not been able to significantly dent the dollar market share! Apart from the Euro, in the the last 10 years, there have been at least 3 half-baked – and unbaked attempts to break the dollar hegemony. So, there you have it – it is out in the open!

What can you do about the Chinese question?

The Way Out

China, in its own short term interest (importantly) and long term interest (definitely) needs to find a way out!

Buying gold in such large quantities is not possible – there will simply be no deliveries. Increasing import ‘trade volumes’ is also difficult – as what more can China import. It cannot send many more Chinese on holidays! They don’t have the single-mindedness of the Indians – when it comes to buying gold.

What it can do is buy Western firms! China has been always been a laggard in terms of growth in software! Maybe they can buy some software firms. The domestic Chinese entrepreneurial spirit has been damped in the last 100 years. What if the Chinese were to spend on some Venture Capital funds! What if China were to kick-start their fast-moving consumer goods industry by buying P&G!

The Chinese need to acquire some big ticket assets – for about US$1.5 trillion and bring down their reserves to US$0.5 trillion. This will reduce US outstanding debt, create demand for US stocks, lift the Dow Jones, and create value for the dollar. As I see it this is the only way that the Chinese can cash in their chips. The House will not let them take it away any other way.

And then the Chinese are free to join any currency bloc – or even initiate one!

India – Beyond Individuals

“Whenever and wherever there is a decline in righteousness, O descendant of Bharata, and a rise of evil — at that time I manifest myself. To deliver all those who believe in goodness and to annihilate the evil, to reestablish righteousness, I will appear, in millennium after millennium.” Bhagwad Geetha IV, 7-8.

Who was Kalidasa? No one quite knows. After composing some of the best lyrical poetry ever, (in Sanskrit), little is known about him. His life lives in his works. Who was Ved Vyasa – the writer of Mahabharata? Or for that matter Valmiki! No one knows. About any one of these people.

Yet, whenever, India had needed, inspirations have come. To lead us … असतो मा सद्गमय From untruth to the truth … तमसो मा ज्योतिर्गमय … From darkness to light … मृत्योर् मा अमृतं गमय … from termination, to eternity …

Tipu Sultan unceasing opposition for more than 30 years (The Mysore Wars – 1767-1799) to the foreign rule before the 1857 War made the British rulers cautious about waging war in India. Immediately thereafter was the challenge of the Sikh qaum – led by Ranjit Singh. The death of Ranjit Singh in (1839) gave them another opportunity. Then followed the Afghan wars and the Sikh Wars (between 1839-1850). In 1857 was the India‘s first war of Independence.

From 1857 to the 1900, the British colonial government decimated Indian leadership. Bahadur Shah Zafar was sent to Rangoon. Rani Lakshmibai of Jhansi. Ahalyabai Holkar. Tantia Tope. Leader after leader came to the fore. And India continued to redefine itself.

From feudal and hereditary leaders, the leadership slowly changed. From political to social. In parallel. In 1828, Raja Ram Mohan Roy formed the Brahmo Samaj. In 1875, Swami Dayanand formed the Arya Samaj. On 24th December 1892, Swami Vivekananda reached Kanyakumari – after travelling across India. He was entertained by rajas and the रंक (commoners) of his day.

Then followed the political leadership. Dadabhai Naoroji’s (Congress President in 1886, 1893 1906) research and quantification of the British Loot from India started a new set of leaders against colonial rule – and a new definition of India. Tilak’s demand for ‘swaraj’ and ‘swadeshi’ goods unnerved the colonialists. The colonial British Government deported Balgangadhar Tilak to Rangoon. He came back stronger than before. In other countries, when old leaders and rulers were removed or replaced, those countries descended into dictatorship, confusion, poverty. In India, we had wave after wave of leaders – and each time India moved forward. In a direction which has no precedents in world history.

What Happened In Other Countries

Why do Australia and Canada still acknowledge the British Queen as the head of the state? Spain has Juan Carlos I as its king! Did you know that Belgium has Albert II as it King? And Queen Beatrix rules over Holland (The Netherlands). King Akihito is venerated by the Japanese – and is the head of the state. Sweden is ruled by King Carl XVI Gustaf. Luxembourg has the Grand Duke Henri as its equivalent to a King! King Harald V lords over Norway! Queen Margrethe II rules over Denmark. The world still has quite a few monarchies – especially in the OECD. Why?

France removed and guillotined the monarchs – and they got Napoleon Bonaparte, as dictator! Russia tried – and they got 70 years of communist dictatorship. Italy asked King Victor Emmanuel III to go – and got Mussolini. The British exiled the Kaiser of Germany – and the Germans had to put up with Hitler thereafter.

Britain terminated the Turkish Ottoman Empire – and Turkey got a benign dictator, Mustafa Kemal Attaturk, and then not so benign dictators – and is yet to recover! East Europe (Romania, Poland, Czechoslovakia, Albania, etc) promptly started fighting with each other, within and without – after the kings were removed. China became communist after the last emperor – and still has a communist dictatorship. Iran, Egypt, Iraq, Libya, most of Africa, South America – same or similar story.

This history is why Canada and Australia cling to the skirts of British Monarchy.

Republican Democracy

America became one of the first successful Republican democracies – from 1789, when George Washington became the first elected President of USA. (70 years later there was a Civil War). America survived.

Israel, (propped up by massive US aid) is another country which has been a republican democracy for more than 50 years. Switzerland (with guaranteed neutrality from the European powers) is another in modern history to survive 50 years of republican democracy. Srilanka has been another country which has survived 50 years as republican democracy – but just about.

India is the youngest Republican democracy – and we have completed a historic 50 years as republican democracy – Jan 26th 1950, till date.

Gandhiji’s Conquest

But before the republic, came the unification of India – the crowning achievement of Gandhiji. Not the political union (achieved by Sardar Patel) – but the ideological union!

Garibaldi (united Italy), Bismarck (united Germany), Simon Bolivar (liberated and united South American countries) were unifiers who succeeded with the help of armies.

Gandhiji (armed with a walking stick) unified a larger India (and Pakistan) without an army. An India and a Pakistan – bigger than what the largest empire in the history of the world, the British Empire could not conquer with its armies.

One Clean Break

To make a one clean break from the feudal-colonial past – and succeed! That is a dream – never before in the history of the world. India made history – by surviving for 50 years with a republican democracy.

In 1947, India was a feudal society with more than 500 Kings and (some) Queens at the time of Independence. (No, the British did not rule over all of modern India). Large parts of India also had to change from a colonial mindset.

How Is India Unique

However, no other country has 15 official languages.

Switzerland has only 4. Sri Lanka’s Sinhalas do not want to accept Sri Lankan Tamils as full and equal citizens – hence the 20 year old civil war.

Social Equality

The liberation of Blacks in the USA is a 1970s phenomenon. It took non-violent protests (Martin Luther King) and violent threats (Malcolm X) for some kind of real emancipation and equity to come in.

Blacks in the USA legally got full and equal liberty only in 1964 after President Kennedy’s Civil Rights Act of 1964. Earlier in 1954, President Eisenhower had to send in the army (the National Guard). In the Cold War scenario, under international media glare, during the Little Rock School stand-off, Eisenhower (a Southerner himself) reacted. The Mayor of Little Rock, Arkansas closed down the school rather than de-segregate. De-segregation (between the Blacks and Whites) happened clearly and fully only by 1970-75. Non-violent protests by Martin Luther King (inspired by Gandhiji’s) till 1968 and violent threats by Malcolm X thereafter, made desegregation a reality. Not to forget Martin Luther King’s assassination in 1968. The eyeball-to-eyeball confrontation during the Kennedy years produced the Civil Rights Act of 1964.

But, Gandhiji’s first step, after coming back from South Africa, (many decades before India’s Independence, Unification and the creation of the Republic) was to start social reform against untouchability.

Enforcement – or Help

India and America, created their own constitutions without external enforcement. Republican democracy in Germany was imposed by the Allied Powers – hence their record is blemished.

Religions

In most countries, religion divides. In India, we are different. India has the world’s second /third largest Muslim population. The Indian Christian population is equal to that of most majority-Christian countries – excluding just a few big one like USA, Russia, Mexico, Brazil, etc. Buddhists number nearly 50 lakhs. Sikhs, Parsis (Zoorastrians), Bahais, follows their own religion. Iranians, Armenians, Jews, Chinese have come to India – when persecuted in their homelands.

Racism! Anyone?

No, thanks!

India has the Caucasoid stock – spread over the North and West India; Australoid stock spread over South India and the Mongoloid stock spread over of East and North East. There is also a very small sprinkling of the Negroid stock – less than 1%.

The Challenges Ahead

The challenges ahead are defence and economics.

India’s defence unpreparedness is beyond comprehension. Worse, is the lack of threat perception. Indians (sadly and truly) limit their threat perception to the Pakistanis – and the Chinese. with the world’s largest private reserves of gold India becomes a target. The resultant global and emerging threats are unrealised. We spend billions of dollars on buying arms all over the world – but our domestic arms industry is starving.

The second is economics. The world trade systems, financial agreements, currency management continue to drag down India – and many other countries. Navigating these uncharted waters successfully is the other.

And I am sure that another set of new leaders will arrive and take India forward to another level.

Sooner – not later.

India’s Silent Revolutionaries

“Mr. Bond, they have a saying in Chicago: “Once is happenstance. Twice is coincidence. The third time it’s enemy action.” Ian Fleming, in Goldfinger.

In 60 years of post-colonial India, 3 significant developments will win the award for deepest impact – but least appreciated or known.

Potti Sreeramulu - Spirit Of The Linguistic State Reorganization (Image source - hindu.com). Click for larger image.

1953 – The Language Genie

An issue on which the colonial rulers ‘set up’ the new rulers of India for failure was on the contentious issue of language. Rightly, the colonial rulers pointed out that there never has been a successful country with so many languages.

Nehru, Subhash Chandra Bose were all for one national language – much like numerous western countries, whose success they so wanted to rival or exceed. And the language of their choice was Hindi.

What kept Europe divided, amongst many things (not that they need help), is language. Belgians (a country with 1 crore population; smaller than Chennai) are being prepared for probable split between the Flemish and the French speaking populations. Canada has been at the precipice for 100 years – torn between two languages. The Balkans , homeland of Alexander the Great (who wanted to make one world), have been at each other for the last 80 years – after they became independent of the Ottoman Empire.

There never has been a country, in modern history, which has had 2-3 languages, without splitting at the seams. One man, who is forgotten and who made a difference was Potti Sreeramulu. A believer and follower of Gandhiji, he pushed Nehru for re-organising India on linguistic lines. Nehru vacillated. Potti Sreeramulu, like Gandhiji, went on ahunger strike. Nehru ignored Potti Sreeramulu’s hunger strike. Potti Sreeramulu died.

The ground swell of international (and also domestic) opinion forced Nehru’s hand. He was left with little choice. And India has since then been administered on linguistic lines. This has given enough space for every sub-culture – without diluting their renewed Indian identity.

In the meantime, Indians have become adventurous in their integration. Idli and Dosa are a part of a Punjabi households and salwar kameez have become popular in Kerala. Hindi film industry is second only to Telugu film industry.

If India had followed colonial administration’s advice of one national language, Tamil Nadu would definitely have seceded in the 1960’s. Ask Sri Lanka. I do hope that Malaysia does not make the Sri Lankan mistake.

1991 – Problems From Outside

Rajiv Gandhi came back from Sriperumbudur in a coffin. Assam problem seemed beyond resolution. The common Indian had given up on Punjab. The 1984 anti Sikh riots only strengthened the negative outlook. Kashmir was simmering. The Indian electorate had given a fractured mandate. A hung Parliament.

Indian economy was going downhill – and nothing seemed to get the economy out of the “Hindu rate of growth”. India was on the verge of a debt default. Indian debt was downgraded by western rating agencies. The Asian Tigers had done wonders – under US tutelage. China was furiously reforming – and succeeding at it. USSR India’s faithful ally, was breaking up. Corruption was endemic and every politician was an Untouchable – nobody or anything could touch them. There were no laws. Many across the world shook their head and could be heard saying, “I knew … I told you … It had to happen …”

All bets on India were off.

A “intellectual” politician, was called back from retirement – to become Prime Minister PV Narasimha Rao. Forgotten today.

By 1995, he set up India for today’s growth. In a matter of 4 years, he cleared 40 years of cobwebs. The direction that he put India on has been now been followed for more than 15 years – with great success by more than 5 Prime Ministers. His biggest success was accountability. Heads of administration do not appear in a court of law – which PVN did. Election Commission, CAG, Supreme Court acquired fangs – earlier docile shadows of their purported design of BR Ambedkar.

1992 – The New Paradigm

One of India’s chronic under performer, Andhra Pradesh got a new Chief Minister – N. Chandra Babu Naidu. In the next 9 years, Andhra Pradesh moved in the Top 5 investment destinations.

Technology savvy, focused, driven – he changed the political idiom in India. State governments now pattern themselves along Naidu’s lines. Privatisations (instead of expanding public sector), tax cuts (instead of increases), administration automation (instead of increased recruitments), hand picked bureaucrats with a development agenda (instead of personal loyalty agenda earlier) were the cornerstones of his strategy. His state administration reform agenda convinced PM Vajpayee to commend Naidu’s template to other state governments to follow.

The Source

These 3 reformers were from Andhra Pradesh – carved out of the earlier Nizam state. The Nizam state was the largest Indian state (in Europe or any other part of Asia, it would have been a few countries) – ruled by an Indian ruler. The last Nizam of Hyderabad, considered at one time the richest man in the world, was also a very simple man. Famously, he never threw away half smoked cigarettes – frugality for world’s richest man. Especially, when other Indian Nawabs out did each other with their spending and peccadilloes in London and Paris.

Andhra Pradesh (most of) was not administered by colonials. Hyderabad is the largest modern Indian city – without a history of Colonial administration. Kolkatta, Chennai, Bangalore, Mumbai, New Delhi were cities ruled by Colonial India administration before the creation of the Indian Republic.

Indian consumer companies test market their products in Hyderabad frequently – as it lends itself to the Indian idiom. Other major metros (with a history of colonial administration) many a time give a “false positive”. Andhra Pradesh supports the world’s largest film industry – bigger than Hollywood and of course, Mumbai film industry.

Two significant creative minds were adopted by Hyderabadis as their cultural mascots. One was Allama Iqbal of “सारे जेहान से अच्छा हिंदुस्तान हमारा” “Saare Jehan Se achcha Hindustan Hamara” fame.

Chirkan, the second mascot, is the “poet” of dirty ditties. Chirkan was the irreverent break from the feudal and colonial Indian mindset – before the Indian Republic.

His rhymes on Qutub minar (a phallic symbol of feudal /colonial majesty of another era) have been repeated by every school child as his very own. He was feted at cultural events – and was a legend in his lifetime. His “sher” on a princess (the Nizam’s daughter) is repeated by schoolboys even today with raging hormones. It is to the Nizam’s credit that Chirkan was not persecuted – but given a token punishment of banishment from Hyderabad.

Forgotten today by the mainstream, Chirkan’s books still circulate in the underground. Chirkan’s rhymes and jokes spread to all of India. 75 years later, every teenager makes his rites of passage with Chirkan’s jokes. Most of Mumbai film industry’s dirty jokes are a take off on Chirkan.

Related articles

• ‘India’ (nytimes.com)

Chidambaram Says … “End 5000 years Of Poverty”

This was Chidamabaram’s statement in the parliament and at least a couple of magazines – including India Today.

Nations Wealth

A nation’s wealth can be a number of things – intellectual wealth, economic wealth, social and political institutions and structures leading to wealth. But primarily, most look at wealth as a measure of economic wealth. And that is what Chidambaram was referring to and most of us accept. Therefore in this write up we will limit ourselves to the economic debate.

A few things.

Obviously, paper money cannot be a measure of wealth. Probably, the de la Rue family would have been the world’s richest family, if paper money was of value. The Bretton Woods mechanism under which the US dollar was the world’s reserve currency lasted as long as it was the only currency on the gold standard. The US Government broke the Bretton Woods mechanism by printing too many dollars. De Gaulle’s French Government started trading in US dollars for gold. In 1971 President Nixon abandoned the Gold standard. Thereafter the world got the first Oil shock and 10 years of stagflation. This French ‘perfidy’ strained US-French relations for the next 30 years. President Sarkozy is today trying to change that – and he can. The casus belli – the US dollar is no longer an issue. Today the US is the world’s largest debtor nation.

Measure Of A Nation’s Wealth?

How does one measure a nation’s wealth? A reliable method is, of course, gold reserves.

India’s private and governmental reserves of gold are by far the largest in the world. Estimates of total Indian gold reserves vary between 25,000 to 30,000 tons. The next highest is the United States with 14,000 tons of gold – with the US Govt accounting for 8000 tons. For at least the last 50 years, India has been world’s largest consumer of gold. (Pliny lamented 1800 years ago as to how imports from India were draining Rome of gold. In 1960’s, James Bond was sent after an arch villian, Auric Goldfinger, to close down illegal gold export from Britain to India in Goldfinger – the book.)

Secret of Japan’s rise

Year 1542. The Sado gold mines were discovered. In 16th-17th century, Japan became the second largest producer of gold in the world. Rapid rise of Japan after that and the rest of story is known to the world. Korea claims that Japan plundered Korea of hundreds of tons of gold from 1937-1944. Philipines, Indonesia have all raised claims against Japan for war time gold loot. Regardless, one American writer had definitely hit a jackpot – Gold Warriors: America’s Secret Recovery of Yamashita’s Gold (By Sterling Seagrave, Peggy Seagrave). Ian Fleming is supposed to have based his story on the Yamashita chapter of WW2.

Sounds like a 5000 years of poverty?

The intellectual father of India’s freedom movement was a British MP of Indian origin – Dadabhai Naoroji. His seminal work on the British colonial loot of India cut away the legs of the Raj – and thereafter, the Raj could not stand. Statistical analyses by Angus Maddisson, Groningen University showed India with a world trade share of 25% for much of the 500 years during 1400-1900.

India loss of wealth is a recent phenomenon. This trend of increasing poverty was halted only with Indian independence and subsequent growth of the Indian economy.
India’s rapid economic decline in the first half of the 20th century is what Chidambaram refers to as the 5000 years of poverty.

Lees Mody Pact

October 28th 1933. Much of India’s Hindu rate of growth can be traced back to this date. On that day, the Bombay Mill Owners Association signed the Lees-Mody Pact. This earned all Indian industrialists Nehru’s distrust. The British had succeeded once again in divide-and-rule.

Japan had become the largest buyer of Indian cotton – in spite of imperial preferences. Lancashire was hurting. Duty on Japanese textiles was raised from 31.5% to 75%. Japan stopped buying Indian cotton in retaliation. Cotton prices crashed. Montagu Norman was already wreaking havoc with his economic policies. demand had collapsed. Britain agreed to “help”. Customs duty was lowered for British goods only to 20%. Britain agreed to buy Indian stock piled cotton at lower prices. Indian mills and the Indian farmer paid the price. GD Birla said “They have lost their nerve …”. Churchill made life difficult in Britain as this pact did not deliver.

While the whole country was following a boycott of foreign goods (specially Lancashire goods), 21 businessmen led by Homi Mody (father of Russi Mody, Piloo Mody) agreed to the system of ‘imperial preference’ – which was behind India’s impoverishment. Earlier, Homi Mody had warned Gandhiji against the renewing the swaraj movement. The “money famine” had collapsed demand in India.

Mody had his own political ambitions. After Independence, Nehru did try and make up with Homi Mody later. Homi Mody was included in to India’s Constituent Assembly – even though he had served the British well.

Chidambaram Should Look At …

What Chidambaram should focus on is a monetary mechanism to leverage India’s 25,000 tons of gold to make India a capital rich country. From there India can start on its way to becoming the richest economy of the world – again.

Significantly, Chidambaram needs to answer if the Indian defence system is adequately funded for its task of protecting the world’s largest gold reserves!