World money: From the Eurodollar to the Sinodollar

The chapter presents an overview of major currency and international capital market movements after World War II, showing that the movements brought about by US investments in the fifties and sixties that created the offshore Eurodollar bear resemblance to what is now taking place between the United States as the world's investor and China. International money is created in a triangular process of long and short lending intermediated by short borrowing. The imbalances often recorded on US current account are to some extent counterbalanced by the huge returns accruing to businesses of the west. This follows the “dark matter” theory but with the twist that real value is extracted through foreign direct investment in line with the rationale of Eurodollar flows. However, threats are also created in this way. Rather than in superficial notions of instability in currency markets, the high returns on capital abroad have been instrumental both in the deindustrialization of the west and the maintenance of a high rate of consumption through the financialization of the housing market. The eventual overdrive precipitated the crisis starting in 2007, but the dollar relationship with China continues unabatedly.