Journeyfish - travel for today

Last year, General Electric reported worldwide profits of $14.2bn (£8.9bn). How much was the federal corporate tax bill for America’s largest firm? Nada, nothing, zilch, zero. It was not alone. Bank of America trousered a $336bn bailout in 2009 but paid no federal corporate tax in 2010.

Now furious American taxpayers are taking note of corporate tax avoidance – by defacing dollar bills. Stamp activism is a growing phenomenon, with photographs of the scrawled-on and rubber-stamped $1 notes spreading across social media.

“This is $1 more than GE has paid in taxes,” says one message. Others deface George Washington with scrawled remarks from “This is $1 more than the Bandits of America (BOA) paid in taxes” to “Tax the rich, Save yo gramma”. On another PhotoShopped note, “In God we trust” is changed to “In debt we trust”. Occasionally the $1 protest veers off message: on one buck, “God” is replaced with “the Dude” after Jeff Bridges’s stoner character in The Big Lebowski.

Will the protest spread to Britain? We have more than our fair share of bankers to bash and tax-avoiding corporations. Unfortunately, writing on bank notes is illegal. So every time you stamp “We’re all in this together” or “In Fred the Shred we trust” on a fiver, be warned, you could be prosecuted and fined £200. Read more at www.guardian.co.uk

“Britain and China took fresh steps to improve their economic relationship on Thursday, agreeing to boost Chinese infrastructure investment in the UK and London’s role as an offshore trading centre for the renminbi… [China has given] formal backing to moves by UK banks and financial institutions to develop the UK as an offshore financial centre for renminbi trading.”

Two years ago, China started allowing ‘offshore’ trade in renminbi in Hong Kong to settle Chinese trade. This follows moves back in 2004 to let Hong Kong residents open limited renminbi bank accounts. China’s aim is to maintain strict capital controls – which Chinese leaders will tell you are a key  ingredient in China’s growth miracle – and yet also allow the currency to trade freely, offshore, insulated from the mainland economy. To have its cake and eat it.

The ultimate end goal of all this is to see the renminbi attain global reserve currency status.

This is a little like what the United States did from the 1960s and 1970s: it was rather tolerant of the offshore London-centred Eurodollar markets, despite all the disruption they were causing, because it helped keep the U.S. dollar as a highly liquid global currency, an essential pre-requisite for its status as the global reserve currency of choice. Having a reserve currency gives a country an ‘exorbitant privilege‘ allowing it to, in essence, print unlimited money at home to pay for foreign escapades. In America’s case, the Vietnam War was a key issue to pay for at the time (read all about it in Treasure Islands). (Trading in your own currency also helps you sidestep currency risk.) In China’s case today there is no big war to pay for – but it’s going to be a highly useful tool generally in future. With London’s help, China hopes it can allow renminbi to be traded ‘offshore’ – now in Hong Kong and London – and yet hold onto those tight capital controls.

This is a major milestone in a gigantic story that has only just begun.

All this will have powerful impacts inside China (see this thought-provoking piece, for instance, for some ideas of what may be happening.) In the case of the U.S. the policy of tolerance of the offshore Eurodollar worked in the short term – but as Treasure Islands explains – it rebounded on the United States in unexpected and unpleasant ways, notably (but not only) in massively boosting the powers of Wall Street and its ability to capture the policy-making apparatus in Washington. It’s not beyond the realms of imagination that something similar might happening in China in future.

And there’s another thing. Offshore renminbi trade is, presumably, going to be massive. According to the Hong Kong Monetary Authority, the percentage of Chinese trade settled in Renminbi (via Hong Kong) rose from 0.7 percent in the first half of 2010 to seven percent in the first half of 2011. What a leap. Zhou Xiaochuan, governor of the People’s Bank of China, said that said that the offshore renminbi market was “developing faster than what we had imagined.” Indeed – just like the Eurodollar market, and offshore markets more generally. Give them an inch, and they will soon take over everything. You can’t really control ‘em. That’s the whole point about offshore, really: they are about escaping from control. Read more at treasureislands.org