A commodity economy needs a commodity currency Swede reason

As the Canadian dollar continues to rise against its U.S. counterpart, the occasional bleats from the commentariat in favour of a monetary union with the United States are fewer and quieter. It seems that a rising currency is one you want to keep, and a falling currency is one you want to ditch.

That would be sensible if (as some people seem to believe) you could easily trade one-for-one when converting from one national currency to another. Unfortunately we live in the real world, where a thing called the exchange rate gets in the way of that daydream. Given the experience of the last few years, that may not be such a bad thing.

The vote earlier this month in which Swedes rejected changing from the krona to the euro illustrates how national currencies are a long way from obsolete. Swedes voted 56% to 42% not to join the European currency zone, in a decisive defeat for both the European Union and the Swedish political, business and labour elites, which had supported the pro-euro campaign.

Indeed, as the date of the referendum got closer, the Great and Good went clutching at straws in a manner reminiscent of the Canadian constitutional plebiscite of 1992. It was telling that the murder of the country’s foreign minister, Anna Lindh, was thought to have a chance of turning the tide in favour of the euro: having exhausted their repertoire of argument, the pro-euro elite pinned its hopes on a display of electoral sympathy — that a people would, on maudlin impulse, vote for a measure they didn’t like or trust.

Swedes gave them a surprise: there was the pile of roses and scribbled notes that has become de rigueur for the deaths of public figures (which invited scornful comparison with the far more dignified way Swedes behaved after the murder of Prime Minister Olaf Palme seventeen years ago). But there was no swing to the euro, and the defeat of the proposal was decisive.

And the comparison with the Canadian plebiscite is especially apt: the Swedish “establishment” was unanimous in its support for moving control over Swedish monetary policy to Brussels, just as the overwhelming weight of Canadian elite opinion favoured the mad package of constitutional amendments put forward in 1992. And ordinary voters were instantly suspicious.

They are probably right to have been suspicious, and probably right, also, to have rejected monetary integration with the Franco-German axis that increasingly sets the economic policies of the European Union. Like Canada, Sweden has long been seen as a “commodity economy,” and the krona, like the Canadian dollar, has been an indispensable tool of monetary policy. Robert Mundell received a Nobel prize in economics for showing that monetary policy, a fixed exchange rate, and free capital flows could not coexist: the “commodity economies” live that reality.

Why, then, did Swedish elites support moving to the Euro? On the surface, it would seem that having national control over monetary policy would appeal to the political class; that the competitive advantage of having a national currency would appeal to the business class; and that the “cushion” of a currency that could fall when times got bad — so preserving jobs — would appeal to organized labour. That all three big noises in Swedish society would see it another way is a mystery.

Or maybe it’s not; because increasingly the elites see themselves as being much more like their counterparts in other countries, forming a transnational “new class” unified not by citizenship but by agenda. And the common European currency is part of the program.

Swedes thought differently: with the result that after the vote the Riksbank announced it “will continue to conduct monetary policy on the basis of an inflation target of 2 per cent, with a tolerated deviation interval of plus/minus one percentage point.” Whether out of mistrust of Big Opinion, or out of good common sense, Swedes opted for keeping control of a specialized economy in the hands of specialists — themselves.