Looking for detente in the currency wars

Top Drawer is one of the largest of the international design fairs that erupt in London, like early autumn mushrooms, in September after Europeans return to work from their summer holidays.

700 exhibitors gather to entice major contracts from the 8,000 buyers and architects who visit the show. This is no retail extravaganza.  The exhibition is all business and is not open to the general public.

This year, for the first time, the Cape Craft and Design Institute brought a number of Cape Town’s top crafters to present their wares.    On hand were textiles from Veldt Designs, ceramics from Zizamele and Imiso, beaded works by Bishop Tarambawamwe and works by Tin Town. 

Top Drawer is no neighbourhood crafts fair.  It is one of the world’s premier events.  Some of the world’s top designers appear alongside leading mainstream brands. The professionalism and quality of the goods on offer can be intimidating but the South African stand had no reason to blush.

Bishop Tarambawamwe was especially excited about a query he had received from Debenhams, an impossibly large department store with 160 sites across the UK and revenues of almost $3 billion a year.  Tarambawamwe is a fantastic guy and his life experience, from selling bead and wire work along the M3 highway in Claremont to a permanent stand at the craft market at the V&A Waterfront, is inspiring.

Andile Dyalvane’s ceramics at Imiso, featuring clay cuts drawing inspiration from tribal scarification, are nothing short of iconic.

So it was good to see the interest of buyers as they probed and queried.  They wanted to be sure of the community-based bona fides of the producers, as well as consistency and quality.  Test orders were placed.

Yet there was a shadow looming over these conversations; the shadow of the weakening currencies of the developed world.

As US dollar-based buying power drops imports crash.

One theory as to why the world currencies are so unstable is that China, which has $2.6 trillion in reserves as a result of their massive trade surplus, has deliberately distorted things.  When China’s economy was small, their fixed (and artificially low) exchange rate was good for exports without harming anyone else.  Now that their economy is so large it acts as a massive weight on other countries, harming their competitiveness.

Another theory is that efforts in Europe and the US to counter the credit crisis through massive state-led borrowing schemes, as well as quantitative easing (printing cash), is simply destabilising these economies all on its own.

Either way, for countries with rising unemployment a strengthening currency is bad news for economic growth.

"We're in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness," said Brazilian finance minister Guido Mantega in comments to Brazilian industrial leaders.

The sabre-rattling is just for show. So far.

Yet the US and EU are in high dudgeon.  They could slap tariffs on imports from China.  Brazil has already doubled taxes on foreign purchases of domestic debt.  Thailand introduced a 15 percent withholding tax for foreign bond investors.  South Africa intends to introduce quotas on imported textiles and clothing.

Any of this risks spilling over into serious and ever-escalating tit-for-tat trade bans.

The hope is that the International Monetary Fund will be able to get world leaders around a table and negotiate.  China and other emerging markets must permit their currencies a bit more flexibility in approaching their “real” exchange rates.  The US and other developed economies must get their borrowing and deficits under control and stop printing money to make up the difference.

The G20 summit in Seoul, starting 11 November, will be a crucial gathering for the world’s leading economies to find common ground.

In the mean time, Cape Town’s crafters will be hoping that the South African rand doesn’t strengthen too much further.