To preserve the value, at home and abroad, of the currencies on which they based their long-term strategy of joining the international economic community, many central bankers are now being forced to make sharp increases in interest rates, or even to relinquish their authority to the blind mechanism of the currency board under which rates are automatically determined by the market. The crisis in Asia shows how much weaker the central banks have become in a world where the power of market players has increased by leaps and bounds. Currency reserves, such as those held by the IMF, are melting away and there is at present no sign of improvement in the economic and social situation. Devaluation, to which the monetary authorities generally have to resort in the end, is by no means sufficient to avoid the social, industrial and financial stagnation affecting whole swathes of once flourishing economies, held up as models by the radical free marketeers. Worse still, it is the surest way to spread the crisis to the rest of the world.
Observers already fear the consequences of devaluation in Brazil or China.
Given the economic and social realities, one might equally well see this blind faith as the ultimate expression of a blinkered attitude on the part of those who for years have remained deaf to all entreaties for a more active macroeconomic policy to deal with the mass unemployment in Europe. This is probably because the European monetary system is the product of a deliberate strategy on the part of the European political and administrative elite. Their first response to the financial crisis was to deny that it might affect Europe's recovery. This seems less and less credible as time goes by. Should this happen, it seems unlikely that any deliberate strategy would be adopted to end the crisis.