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PS Say More


Paola Subacchi
Says More…

This week, Project Syndicate catches up with Paola Subacchi, Professor of International Economics at the University of London’s Queen Mary Global Policy Institute, Director of the research service Essential Economics, and author of the forthcoming book The Price of Free Money.

Project Syndicate: As you pointed out in August, in recent years, the People’s Bank of China has generally intervened to prop up the renminbi, not devalue it, owing to the authorities’ desire to boost consumer demand and prevent capital outflows at a time of high and rising debt. But with the Sino-American trade war continuing to do harm, and a credible agreement to end the dispute still far from certain, at what point do the costs of a stronger renminbi outweigh the benefits?

Paola Subacchi: The People’s Bank of China wants to keep the renminbi exchange rate stable and in line with the government’s policy objectives. Since August 2015, when tumbling Chinese stock prices raised the specter of financial instability, that has meant, first and foremost, preventing excessive capital outflows.

As growth slows and US tariffs take their toll, preserving financial stability by propping up the renminbi becomes an even trickier balancing act. But the truth is that China shouldn’t be performing it at all; indeed, the PBOC should have abandoned the practice of exchange-rate management years ago.

PS: With mounting mistrust of the United States accelerating the drive for international monetary reform, you present a couple of possible approaches: “expanding the international role of other currencies” or creating an “alternate monetary system, centered on the needs of developing countries.” How likely is reform, and what form would it be most likely to take?

Subacchi: At the 1971 G10 meeting in Rome, then-US Treasury Secretary John Connally proclaimed, “The dollar is our currency, but it’s your problem.” That statement unfortunately remains true to this day.

As the Trump administration continues to weaponize the dollar, it is clearer than ever that the world should be moving toward a multi-currency global monetary system, with the renminbi, in particular, playing a much larger role in international trade and finance. Yet comprehensive reform is unlikely to happen any time soon, not least because of China’s struggles with slower economic growth and financial imbalances.

PS: You’ve suggested that neoliberalism is actually a form of social engineering, in the sense that those societies that embraced free-market ideology “have become increasingly divided in terms of economic power, influence, education, and health.” And, judging by many of these societies’ politics today, there has been considerable buyer’s remorse among voters. Which policies would do the most to address their grievances?

Subacchi: The failures of neoliberalism, from sharp inequality to environmental degradation, confront us every day. In my forthcoming book The Price of Free Money, I argue that, after the 2008 crisis, the world’s major mistake was to reset the system, rather than overhaul it.

But it may not be too late for significant reform. The key to success would be a kind of “New Deal” that balances traditional economic objectives – growth and wealth creation – with a range of other priorities, including strong social safety nets, equitable labor markets, fair distribution of resources, environmental sustainability, and community openness.

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Subacchi recommends

We ask all our Say More contributors to tell our readers about a few books that have impressed them recently. Here are Subacchi's picks:

  • Narrative Economics

    Narrative Economics

    This book, which was sent to me to be reviewed, offers insight into how popular stories affect individual and collective economic behavior, and it is as entertaining as a book on economics can possibly be. Project Syndicate just published an excellent overview of its contents, written by Barry Eichengreen.

  • Hostile Money: Currencies in Conflict

    Hostile Money: Currencies in Conflict

    I am intrigued by the numerous links between money, power, and conflict, but I am also frustrated by how the topic is typically treated – mainly by international-relations specialists, because economists generally stay clear of it. This well-researched book, which includes both historical examples and contemporary evidence, avoids those pitfalls, while offering new perspective on some important dynamics.

  • M. Il figlio del secolo

    M. Il figlio del secolo

    Soon to be published in English by HarperCollins, this book – which became a fixture on Italian best-seller lists after its publication last year, despite its 839-page heft – tells the story of Benito Mussolini. After resisting the trend for a long time, I recently followed some trusted advice and bought it. I cannot put it down. The story is compelling, especially the section on the interwar period, though one wonders – returning to a dilemma Shiller raises – whether it is history or narrative.

From the PS Archive

From 2017
In the long read that inspired her forthcoming book, The Cost of Free Money, Subacchi called on advanced-economy leaders to commit urgently to reforming the Bretton Woods institutions – or risk watching them be replaced. Read the commentary.

From 2017
Subacchi discussed financial stability, China, Brexit, and Italy with former editor of The Economist John Andrews, Financial News columnist David Wighton, and Andre Verissimo, Managing Editor of Portugal’s Jornal do Negòcios. Watch the video.

From 2017
In the back of a London taxicab, Subacchi and Andrews discussed the challenges facing the economics profession in the wake of the 2008 global financial crisis. Watch the video.

Around the web

Soon after the global economic crisis, Subacchi asked who was actually in charge of the global monetary system. Read the journal article.

In 2015, Subacchi argued that, to remain relevant, the G20 would have to extend its remit beyond financial and economic concerns to include broader foreign-policy issues. Read the commentary.;

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