Recommended Reading: Global Finance & Economics
Title: Dance of the Trillions: Developing Countries and Global Finance (2018). Available on Amazon and Brookings Institution Press.
Who: David Lubin, Associate Fellow, Global Economy and Finance Programme at Chatham House, and managing director and head of emerging markets economics at Citi, where he is responsible for a team of more than 30 economists in 15 locations globally. Before joining Citi in 2006, he had been at the HSBC group since 1989, where his career started in the field of sovereign debt restructuring negotiations with governments in Latin America and Eastern Europe.
Why: Are decentralized finance (DeFi) and blockchain technology innovative solutions that address wealth creation and economic development (particularly in developing countries)? Can facilitating financial access — from Silicon Valley (California, USA) to the “Silicon Savannah” (Kisii, Kenya) — by transacting through alternative secure, transparent, efficient mechanisms address the economic challenges we face today? What are the technological, socio-economic, and political dimensions of the problem? To answer this, I thought an appreciation of the historical context and the prevailing circumstances of global finance would be helpful.
In “Dance of Trillions,” David offers insights into the complexity of the global financial system and how it has affected developing countries. David describes the risks and benefits of the extant system, which is arguably unsustainable, ultimately sabotaging sincere efforts to support developing countries. The thesis is constructed around how the “Washington Consensus” framework has unfolded — promoted by the US government and the establishment of the IMF and World Bank over 70 years ago. He offers analysis and perspectives on the opportunities for promoting financial stability and development, focusing on China’s influence on the global stage with its Belt and Road initiative. (Incidentally, China has become the Kenyan government’s most significant foreign bilateral creditor).
Well-written and entertaining, with good explanations, metaphors, and analogies to support the arguments, including regularly summarizing salient points to keep focused on the issue.
The Financial Times selected it as one of the best economics books of 2018.
What:
“The basic arc of this book, therefore, follows the move in the relationship between developing countries and international finance from a U.S.-shaped regime to a China-shaped one.”
David sets the stage with an economic analysis of Cuba in the 1920s to illustrate the delicate relationship between developing countries and global finance, explicitly drawing on the aspects of global trade, “income convergence,” “emerging markets,” and the nuances that external finance offers developing economies. The content follows a chronological approach in five parts where:
- Chapter 1 looks at the 1970s, examining the role that markets played through: “petrodollar recycling,” where capital was reallocated from surplus countries to those with deficits; understanding capital movements due to global inflation; and how the US Fed’s policies to address inflation influenced the boom to bust cycle.
- Chapter 2 identifies the lessons learned from the 80s and 90s, illustrating the connections between Latin America’s “lost decade” and the crises experienced in “emerging markets” around the globe.
- Chapter 3 explores how “emerging markets” became more coherent as an investment theme during the past thirty years. An important distinction is made between economic globalization and financial globalization. David describes how developing countries protected themselves against the volatility of capital flows.
- Chapter 4 examines China’s rise in the 2000s as a more decisive influence on the economic life of developing countries. It assesses how China’s rise helped support a long string of current account surpluses in the developing world, adding a further source of financial protection to those countries.
- Chapter 5 investigates whether China’s economic and financial power can be translated into intellectual influence over how developing countries manage their capital accounts and economic policies. It discusses China’s openness and discretion to manage capital flows and the implications of Beijing influencing global capital mobility.
Selected quotes:
Just as bankers had descended on Havana in the wake of the 1919 sugar boom, they found their way to Jeddah in 1974, only this time to source funds rather than to lend them.
The petrodollar recycling process in the 1970s abandoned the principle that bank lending should be linked to some specific end use. Instead, lending was offered to support rising deficits in the budget and the balance of payments.
U.S. monetary tightening tipped the developing world into crisis … It took almost a decade for the developing world to recover from the crisis that followed. And it would take almost a generation for developing countries to adapt themselves to a more fundamental problem: the overwhelming influence of the U.S. Federal Reserve in their economic life.
The problems that countries faced during the era of crises had little to do with the case for economic globalization, or how a country takes part in a global market for goods and services. Rather, they had everything to do with how to manage financial globalization.
The IMF was born in a world in which the idea of controlling international capital movements was at the very heart of the international monetary system set up at the 1944 Bretton Woods conference, and was influenced by the memory of the crises wrought by unfettered global capital mobility in the 1920s.
China, in summary, played an indispensable role during the 2000s in creating what might be called an “age of convergence,” a period in which developing countries caught up economically with their rich-country counterparts to an extent that had not been achieved in previous episodes of globalization.
Other media: (sorted descending from most recent).
Blavatnik School of Government (University of Oxford, July 2020) David talks to Emily Jones, Associate Professor of Public Policy at the Blavatnik School of Government, about the global economic impacts of the COVID-19 crisis on emerging economies.
London Business School (December 2018) David, Hélène Rey (Professor of Economics at LBS), and Elias Papaioannou (Professor of Economics and Academic Director, Wheeler Institute for Business and Development) discuss “Dance of Trillions.” David responds to questions from the audience.
