Chavez Moves Towards Barter Economy

Hugo Chavez is proposing a "trade for goods/services" model instead of a cash economy in the Caribbean. BBC Story.

Chavez is already doing this with Cuba, and has been for quite some time. His motives are clear enough - Chavez feels that the US in particular has too much influence in the region, especially via devices like the World Bank and World Monetary Fund, which tend to impose political structure as a condition of the loans that they provide.

Like recent moves in the Middle East to establish commodities trade based against the Euro, Chavez's recent maneuvers show us a different strategy for undermining the historic dominance of the US greenback as the "lingua franca" of international trade currency.

In spite of "globalization", what we may be seeing the early stages of is a balkanization of the world along economic rather than political lines. Consider the following - Canada, the United States and Mexico form a significant "free trade zone", and much of South and Central America appears to be poised to step back from the dominance of the Northern hemisphere. (and Chavez's approach may well appeal to countries who are struggling under IMF/World Bank imposed economic structures in the region)

While one may look at Chavez's proposal as "mere posturing from an insignificant dictator", it has some interesting subtleties to it that I would not be so quick to dismiss. By switching to a barter system, Chavez and his allies quite effectively undermine the ability of organizations like the World Bank to dictate political and economic conditions to them - restoring a level of political autonomy that has been missing for those governments for some time, a very appealing proposition indeed.

There are other signs of growing segmentation in international trade to be considered as well.

As the EU grows and stabilizes, it becomes an important economic player for two reasons. It represents a single block of trading countries whose combined economies exceeds that of the United States, and the Euro becomes an appealing currency for international trade because it is perceived to be more stable, and less susceptible to the whims of a single country's government.

There are also signs of a reinvigorated Russia emerging as something of a unifying factor in much of the Middle East, and evolving ties with China that seem important.

The overall picture starts to suggest that the world is shifting, and opportunities to back away from relying on the US dollar as a "standard" in world trade are emerging in some unexpected ways - and those will change the landscape of world trade in the years to come.