How to build a Global Currency

From The Economist

Seventy years ago the Indian rupee was often found a long way from home. After India gained independence from Britain, the currency remained in use in sheikhdoms across the Arabian Sea. Until as late as 1970, some employed the Gulf rupee, a currency issued by India’s central bank.

Today the picture is rather different. The rupee accounts for less than 2% of international-currency transactions, even though the Indian economy is the world’s fifth-largest. Narendra Modi, India’s prime minister, would like to see the currency span the globe once again. Speaking at the 90th anniversary of the Reserve Bank of India on April 1st, Mr Modi told the central bank’s policymakers to focus on making the rupee more accessible. Historically, however, national leaders have been a lot more likely to express enthusiasm for the idea of making their currency a global one than to enact the reforms required to do so.

Although the American dollar is the undisputed king of currencies, there are many with a global role of their own. The euro, the British pound, the Swiss franc, and the dollars of Australia, Canada, Hong Kong and Singapore are all examples. These currencies are found in foreign reserves and private portfolios worldwide, and used for both trade and financial transactions. In theory, there is no reason why the rupee should not join the illustrious group.

Having a widely used currency brings sizeable benefits. Demand from overseas investors lowers financing costs for domestic companies, which are no longer compelled to borrow in foreign currencies. Such demand also reduces exchange-rate risks for exporters and importers, who do not need to convert currencies so often when trading, and enables the government to reduce the size of its foreign-exchange reserves.

Some of the foundation stones of an international currency are being laid in India. The country now has assets that foreigners want to buy, making the rupee a potential store of value overseas. In September JPMorgan Chase, a bank, announced that it would include Indian government bonds in its emerging-market index. Bloomberg, a data provider, took the same decision last month. The explosive performance of the country’s stocks, which are up by 37% in dollar terms over the past year, has piqued global interest.

The rupee is also increasingly a unit of account and a medium of exchange for foreigners. Banks from 22 countries have been permitted to open special rupee-denominated accounts, without the usual exchange limits. In August India made its first rupee payment for oil, to the Abu Dhabi National Oil Company.

Yet China shows how far India has to go. Although Chinese policymakers have been trying to make the yuan a global currency for more than a decade, it still accounts for less than 3% of international trades made via swift, a payments network, outside the euro zone, despite the fact that China accounts for 17% of global gdp. Moreover, 80% of such international yuan transactions occur in Hong Kong. China’s relatively closed capital account, which prevents investments from flowing freely across its borders, is the main obstacle to wider use of its currency. India’s capital account is less closed than it once was, but is still far more sheltered than that of any of the countries with a global currency.

Japan provides a better example. In 1970 it accounted for 7% of global gdp—more than the 4% it does now—and its companies were beginning to make a mark abroad. But the yen was a nonentity. That changed over the following decade: in 1970, 1% of Japan’s exports were invoiced in yen; by the early 1980s, 40% were. In 1989 the yen made up 28% of all foreign-exchange transactions. It still accounts for 16% today.

To make the leap to global-currency status, Japan’s leaders had to transform the country’s economy. They allowed foreigners to hold a wide range of assets, deregulated big financial institutions, and peeled back controls on capital flows and interest rates. These changes disrupted Japan’s export-oriented economic model, and undermined the power of the country’s bureaucrats.

Changes just as far-reaching—and uncomfortable—will be required for any country that now wants to join the top table. Few seem to have the stomach for them at present. Indeed, without American pressure and the threat of tariffs, Japan itself might not have made such reforms. America is not about to lean on India in the same way. The desire for change will have to come from within.

Economic Update about The US and Europe

 

A Level Economics 92: UK's Financial Sector

Changes in the Structure of the UK Economy:

In recent years, the UK economy has undergone significant changes in its structure. One notable trend is the growing size and influence of the financial sector. The financial sector includes banks, insurance companies, investment firms, and other financial institutions. Some key factors contributing to the growth of the financial sector in the UK include:

1. Global Financial Hub: London, the UK's capital, has established itself as a global financial hub, attracting financial institutions and professionals from around the world. The presence of a well-developed financial infrastructure, including stock exchanges, financial services firms, and regulatory institutions, has further strengthened the UK's financial sector.

2. Financial Services Exports: The UK's financial sector is a significant contributor to the country's export revenue. Financial services, such as banking, insurance, and asset management, are exported to other countries, generating substantial income for the UK economy.

3. Technological Advancements: Technological advancements have facilitated the growth of financial services, such as online banking, digital payments, and fintech innovations, contributing to the expansion of the financial sector.

4. Deregulation and Globalization: Deregulation and increased globalization have allowed financial institutions to operate more freely across borders, expanding their reach and influence.

Asset Bubbles and Economic Consequences: Asset bubbles occur when the prices of certain assets, such as real estate, stocks, or commodities, rise to unsustainable levels, driven by excessive speculation and investor optimism. When the bubble eventually bursts, asset prices collapse, leading to severe economic consequences. Examples of asset bubbles include the dot-com bubble in the late 1990s and the housing bubble that preceded the 2007-2008 financial crisis.

Causes of Asset Bubbles:

1. Easy Credit: Loose monetary policies and low-interest rates can encourage borrowing and speculative investments, driving up asset prices.

2. Speculative Behavior: Investors' expectations of ever-increasing prices can lead to speculative buying, further inflating asset values.

3. Herd Mentality: As more investors rush to buy a particular asset, it can create a herd mentality, pushing prices higher.

Economic Consequences of Asset Bubbles:

1. Wealth Erosion: When asset prices collapse, individuals and institutions holding these assets can experience significant wealth losses.

2. Financial Instability: Bursting asset bubbles can lead to financial instability, impacting banks and financial institutions with exposure to the affected assets.

3. Investment Downturn: Asset bubble bursts may discourage investment and lead to a slowdown in economic activity.

4. Consumer and Business Confidence: Sharp declines in asset prices can erode consumer and business confidence, leading to reduced spending and investment.

The Role and Purpose of Regulation: Financial regulation is crucial for creating financial stability and protecting consumers and investors. Regulation aims to:

1. Ensure Soundness: Regulators set standards to ensure that financial institutions maintain adequate capital, manage risks prudently, and comply with rules to avoid excessive leverage and instability.

2. Prevent Systemic Risks: Regulation addresses systemic risks that could threaten the stability of the entire financial system.

3. Consumer Protection: Regulation safeguards the interests of consumers and investors, ensuring fair treatment and transparency.

4. Maintain Market Integrity: Regulations promote fair competition, prevent market manipulation, and ensure the integrity of financial markets.

Evaluation of the UK's Large Financial Sector: The UK's large financial sector has both benefits and challenges for the real economy:

Benefits:

1. Contribution to GDP: The financial sector contributes significantly to the UK's Gross Domestic Product (GDP) and employment, supporting economic growth.

2. Global Competitiveness: The financial sector's global competitiveness enhances the UK's position as a financial hub, attracting foreign investment and skilled professionals.

Challenges:

1. Vulnerability to Financial Crises: A large financial sector can make the economy more susceptible to financial crises and their repercussions.

2. Income Inequality: The concentration of wealth in the financial sector can exacerbate income inequality in the economy.

3. Overreliance on Finance: An overreliance on the financial sector may divert resources from other sectors of the economy.

In conclusion, the growth of the UK's financial sector has been significant, making London a global financial center. However, the size and influence of the financial sector bring both benefits and challenges, requiring careful regulation to ensure financial stability and balanced economic growth.

The Fed Chair must acknowledge that free money has made asset prices unsustainably high

Gillian Tett in The FT 

This week financiers’ eyes have been firmly fixed on the Federal Reserve. No wonder. On Wednesday the US central bank raised rates at the most aggressive pace for 22 years, as Jay Powell, Fed chair, finally acknowledged the obvious: inflation is “much too high”. 

But as investors parse Powell’s words, they should spare a thought for a central bank on the other side of the world: the Reserve Bank of New Zealand. 

In recent years, this tiddler has often been an unlikely harbinger of bigger global trends. In the late 20th century, for instance, the RBNZ pioneered inflation targeting. More recently, it embraced climate reporting ahead of most peers. 

Last year, it started tightening policy before most counterparts. And this week it went further: its latest financial stability report warns of a “plausible” chance of a “disorderly” decline in house prices, as the era of free money ends. 

Unsurprisingly, the RBNZ also said it hopes to avoid a destabilising crash. But the key point is this: the Kiwi central bankers know they have an asset bubble on their hands, since property prices have jumped 45 per cent higher in the last two years and “are still estimated to be above sustainable levels”. This reflects both ultra-low rates and dismally bad domestic housing policies. 

And it is now telling the public and politicians that this bubble needs to deflate, hopefully smoothly. There is no longer a Kiwi “put” — or a central bank safety net to avoid price falls. 

If only the Fed would be as honest and direct. On Wednesday Powell tried to engage in some plain speaking, by telling the American people that inflation was creating “significant hardship” and that rates would need to rise “expeditiously” to crush this. He also declared “tremendous admiration” for his predecessor Paul Volcker, who hiked rates to tackle inflation five decades ago, even at the cost of a recession. 

However, what Powell did not do was discuss asset prices — let alone admit that these have recently been so inflated by cheap money that they are likely to fall as policy shifts. 

A central bank purist might argue that this omission simply reflects the nature of Powell’s mandate, which is to “promote maximum employment and stable prices for the American people”, as he said on Wednesday. In any case, evidence about the short-term risk of asset price falls is mixed. 

Yes, the S&P 500 has dipped into correction territory twice this year, with notable declines in tech stocks. However, the American stock indices actually rallied 3 per cent on Wednesday, after Powell struck a more dovish tone than expected by ruling out a 75 basis point rise at the next meeting. 

And there is no sign of any fall in American property prices right now. On the contrary, the Case-Shiller index of home prices is 34 per cent higher than it was two years ago, according to the most recent (February) data. 

However, it beggars belief that Powell could crush consumer price inflation while leaving asset prices intact. After all, one key factor that has raised these prices to elevated levels is that the Federal Reserve’s $9tn balance sheet almost doubled during the COVID-19 pandemic (and has expanded it nine-fold since 2008.) 

And, arguably, the most significant aspect of the Fed’s decision on Wednesday is not that 50bp rise in rates, but the fact that it pledged to start trimming its holdings of mortgages and treasuries by $47.5bn each month, starting in June — and accelerate this to a $90bn monthly reduction from September. 

According to calculations by Bank of America, this implies a $3tn balance sheet shrinkage (quantitative tightening, in other words) over the next three years. And it is highly unlikely that the impact of this is priced in. 

After all, QT on this scale has never occurred before, which means that neither Fed officials nor market analysts really know what to expect in advance. Or as Matt King, an analyst at Citibank, observes: “The reality is that tightening hasn’t really started yet.” 

Of course, some economists might argue that there is no point in the Fed spelling out this risk to asset prices now, given how this might hurt confidence. That would not make Powell popular with a White House that is facing a difficult election, Nor would it help him achieve his stated goal of a “soft” (or “softish”) economic landing, given that consumer sentiment has wobbled in recent months. 

But the reason why plain speaking is needed is that a dozen years of ultra-loose policy has left many investors (and households) addicted to free money, and acting as if this is permanent. Moreover, since the Fed has repeatedly rescued investors from a rapid asset price correction in recent years — most recently in 2020 — many investors have an innate assumption that there is a Fed “put”. 

So if Powell truly wants to emulate his hero Volcker, and take tough measures for long-term economic health, he should take a leaf from the Kiwi book, and tell the American public and politicians that many asset prices have been pumped unsustainably high by free money. 

That might not win him fans in Congress. But nobody ever thought it would be easy to deflate a multitrillion dollar asset price bubble. And the Fed has a better chance of doing this smoothly if it starts gently and early. Wednesday’s rally shows the consequences of staying silent.

Beware the rich persons’ savings glut

Since the 1990s, the private share of national wealth has soared while public wealth has shrunk writes Gillian Tett in The FT

This week, as western governments pondered sending aircraft to Ukraine, the Kyiv government embarked on a novel financing step: it launched a website #buymeafighterjet to crowdsource donations for jets from the world’s mega-rich. 

Once that might have seemed a laughably bizarre thing to do. But today it no longer appears quite so odd. Never mind the fact that events in Ukraine show we live in a world where networks, not institutions, wield power; today the ultra wealthy increasingly wield riches and power, with some billionaires controlling budgets comparable to those of small countries. 

And while it is unclear whether #buymeafighterjet will deliver planes, the symbolism is worth noting. It highlights a trend that deserves far more attention from economists and political scientists alike — and in spheres that have nothing to do with war. 

Consider one radically different context: this week’s World Economic Outlook report from the IMF. The message in this tome that grabbed most attention this week was that the world faces rising inflation, high debt and stalling growth — stagflation, in other words, although the IMF tactfully downplays that term. 

But on page 62 of the report there was also an intriguing little sidebar about the “Saving Glut of the Rich”. A decade ago, the concept of a “savings glut” was something usually discussed in relation to China. When market interest rates plunged in the early 21st century, economists argued that rates were being suppressed because emerging market countries were recycling their vast export earnings into the financial system. 

Or, as Ben Bernanke, former Federal Reserve chair, wrote in 2015: “A global excess of desired saving over desired investment, emanating in large part from China and other Asian emerging market economies and oil producers like Saudi Arabia,” had created a “global savings glut”. 

But, this week, the IMF highlighted another, little-noticed contributing issue: the ultra-rich. It pointed out that a “substantial rise in saving at the very top of the income distribution in the United States over the past four decades . . . has coincided with rising household indebtedness concentrated among lower-income households and rising income inequality”. 

And while economists used to look at this through an American lens, “the phenomenon may not be limited to the United States”, the Fund notes. It seems to be global. And since the rich cannot possibly spend all their wealth — unlike the poor, who usually do — this savings glut has almost certainly “contributed to the secular decline of the natural rate of interest”. 

Moreover, while the IMF downplays this, the actions of western central banks have made the pattern worse. Years of quantitative easing have raised the value of assets held by the rich, thus expanding inequality — and with it the rich persons’ savings glut. 

How much has this affected rates? In truth, no one knows, not least because information about this shadowy world of ultra wealth is sparse. Or, as the World Inequality Laboratory notes in its 2022 report: “We live in a data-abundant world and yet we lack basic information about inequality.” 

Furthermore, western central bankers have limited incentive to study these issues too publicly, since many feel privately embarrassed that quantitative easing has made inequality worse. 

But one sign of the trend can be found in the 2022 Wealth Inequality Index report: not only have the richest 1 per cent across the world apparently taken 38 per cent of all wealth gains since the mid 1990s, but also the private share of national wealth has soared, while public wealth has shrunk. 

Another striking clue emanates from reports collated by Campden consultants, experts on the family office ecosystem. In 2019, they calculated that there were 7,300-odd family offices in the world, controlling $6tn in funds, a 38 per cent increase from 2017. Between 2020 and 2021, during the latest wave of QE, funds under management increased on average by 61 per cent. 

It is possible that this trend in inequality will slow if QE — and with it asset inflation — comes to an end in 2022 and beyond. Or maybe not — as the IMF report also points out, a world of stagflation risks and rising rates is one that will hurt the indebted poor far more than it will the rich. 

Either way, the pattern deserves far more debate among economists and political scientists. We need to know, for example, whether ultra-wealthy funds will step in to buy assets like Treasuries as central banks wind down QE. 

The way family offices are contributing to a secular shift from public capital markets to private ones should get more attention — particularly since economists such as Mohamed El-Erian predict that this will accelerate in the wake of Russia’s invasion of Ukraine. 

We also need to pay more attention to governance issues. The expanding private pots are generating innovative forms of philanthropy (which is good). But they can also subvert democracy via dark money donations (which is bad). Either way, #buymeafighterjet is one tiny symbol of an increasingly networked but unequal world. We ignore this at our peril.

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Time for a great reset of the financial system

A 30-year debt supercycle that has fuelled inequality illustrates the need for a new regime writes CHRIS WATLING in The FT 

On average international monetary systems last about 35 to 40 years before the tensions they create becomes too great and a new system is required. 

Prior to the first world war, major economies existed on a hard gold standard. Intra-wars, most economies returned to a “semi-hard” gold standard. At the end of the second world war, a new international system was designed — the Bretton Woods order — with the dollar tied to gold, and other key currencies tied to the dollar. 

When that broke down at the start of the 1970s, the world moved on to a fiat system where the dollar was not backed by a commodity, and was therefore not anchored. This system has now reached the end of its usefulness. 

An understanding of the drivers of the 30-year debt supercycle illustrates the system’s tiredness. These include the unending liquidity that has been created by the commercial and central banks under this anchorless international monetary system. That process has been aided and abetted by global regulators and central banks that have largely ignored monetary targets and money supply growth. 

The massive growth of mortgage debt across most of the world’s major economies is one key example of this. Rather than a shortage of housing supply, as is often postulated as the key reason for high house prices, it’s the abundant and rapid growth in mortgage debt that has been the key driver in recent decades. 

This is also, of course, one of the factors sitting at the heart of today’s inequality and generational divide. Solving it should contribute significantly to healing divisions in western societies. 

With a new US administration, and the end of the Covid battle in sight with the vaccination rollout under way, now is a good time for the major economies of the west (and ideally the world) to sit down and devise a new international monetary order. 

As part of that there should be widespread debt cancellation, especially the government debt held by central banks. We estimate that amounts to approximately $25tn of government debt in the major regions of the global economy. 

Whether debt cancellation extends beyond that should be central to the negotiations between policymakers as to the construct of the new system — ideally it should, a form of debt jubilee. 

The implications for bond yields, post-debt cancellation, need to be fully thought through and debated. A normalisation in yields, as liquidity levels normalise, is likely. 

High ownership of government debt in that environment by parts of the financial system such as banks and insurers could inflict significant losses. In that case, recapitalisation of parts of the financial system should be included as part of the establishment of the new international monetary order. Equally, the impact on pension assets also needs to be considered and prepared for. 

Secondly, policymakers should negotiate some form of anchor — whether it’s tying each other’s currencies together, tying them to a central electronic currency or maybe electronic special drawing rights, the international reserve asset created by the IMF. 

As highlighted above, one of the key drivers of inequality in recent decades has been the ability of central and commercial banks to create unending amounts of liquidity and new debt.

This has created somewhat speculative economies, overly reliant on cheap money (whether mortgage debt or otherwise) that has then funded serial asset price bubbles. Whilst asset price bubbles are an ever-present feature throughout history, their size and frequency has picked up in recent decades. 

As the Fed reported in its 2018 survey, every major asset class over the 20 years from 1997 through to 2018 grew on average at an annual pace faster than nominal GDP. In the long term, this is neither healthy nor sustainable. 

With a liquidity anchor in place, the world economy will then move closer to a cleaner capitalist model where financial markets return to their primary role of price discovery and capital allocation based on perceived fundamentals (rather than liquidity levels). 

Growth should then become less reliant on debt creation and more reliant on gains from productivity, global trade and innovation. In that environment, income inequality should recede as the gains from productivity growth become more widely shared. 

The key reason that many western economies are now overly reliant on consumption, debt and house prices is because of the set-up of the domestic and international monetary and financial architecture. A Great Reset offers therefore opportunity to restore (some semblance of) economic fairness in western, and other, economies.

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What's behind the headlines demanding a return to the office?

Instead of reimagining the world of work, our censorious press backs those whose wealth depends on the commuter-driven status quo writes Hettie O'Brien in The Guardian

‘Nobody can think that risking their health to save a multimillion-pound sandwich chain is a sensible endeavour.’ Photograph: Peter Summers/Getty Images

 With a deadly virus smaller than a speck of dust still circulating, it’s natural that many office workers would rather be doing their jobs from home. Though this inadvertent mass experiment in home working hasn’t been universally enjoyable, particularly for those living in cramped accommodation or juggling work and children, it has at least freed many from commuting, allowed some to spend more time in their local communities, and made cities less congested as a result.

But this isn’t what you’d think from the censorius press coverage of home working, which has treated it as a collective sickness that is stalling Britain’s recovery. Last week, the Daily Telegraph ran a piece stating that workers remaining at home will be more vulnerable to redundancy, with bosses finding it far easier to hand P45s to employees they haven’t seen during the pandemic. Its language was telling: people must “go back to work”, as if they are not already working.

An article in the Daily Mail reprimanded office workers for “boasting smugly about their exciting new ‘work/life balance’ and the amount of money they are saving on their railway season tickets”, as if these were morally reprehensible acts. “If your job can be done from home it can be done from abroad, where wages are lower”, TV presenter Kirstie Allsopp warned on Twitter, adding: “if I had an office job I’d want to be first in the queue to get back to work and prove my worth”. The meaning of these veiled threats is clear: if you stay at home, expect to lose your job.

Beneath this scolding is a message directed at those who aren’t complying with the old status quo. The service economy in financialised city centres depends on the consumption patterns of office workers: commuting every day involves not just buying a sandwich or a coffee from Pret, but helping to prop up an entire system. Were it not for the vast numbers flowing out of stations every morning, the capacity to extract astronomical rents, both from commercial and residential properties, would shrivel – and city centres would no longer be soulless corporate landscapes where multiple franchises of the same chain restaurant can be found within walking distance of each other.

Warnings from the CBI that city centres could become “ghost towns” if commuters never return belie reality: these have long been sterile places devoid of character – it’s just that in the past, it seemed unlikely they might change.

A recent YouGov poll gauging enthusiasm for this back-to-work mantra found that support for workplaces “encouraging [workers] to return to the office” correlated with age: 44% of over-65s agreed with this statement, while only 25% of 25- to 49-year-olds did so. That the over-65s, the age group least likely to be returning to the office, are the most enthusiastic supporters of this principle is unsurprising. The idea that you’ve got to be physically present to prove your value to your boss encodes an entire attitude to work – one firmly rooted in the Taylorist management doctrine of the 20th century, when employees were expected to conform to the objectives of the firm in exchange for a permanent contract. Today, the expectation of worker “flexibility” is more widespread, and surveillance that once relied on office overseers can now be conducted online (indeed, since the start of the pandemic, the demand for software that monitors workers while they’re working from home has surged).

Despite the media paranoia over home working, many managers don’t really seem to care that people aren’t back in the office. Some companies have said they will move to remote working full time, or at least allow employees to work this way some of the time. The people who seem most concerned about going back to work aren’t workers, or managers, but rentiers – a category that applies to many retiree readers of the Daily Mail and the Telegraph, a demographic that is likely to have paid off mortgages, receives generous pensions and contains a higher proportion of private landlords, and to the rentiers who have funneled their wealth into assets such as real estate and office spaces concentrated in urban centres. Until recently, both of these groups were relatively insulated from economic shocks affecting the labour market, their wealth dependent on the continuation of an old normal that now seems more precarious than ever.

The monstering of home working doesn’t really stem from concern about workers’ productivity or mental wellbeing. Instead it’s an attack on those who dare flout the rules that sustained the old normal. The survival of city centres, and by extension the businesses that extract rent from them, relies upon everyone playing their part – most of all workers. Telling people they must return to the office whatever the circumstances is a way to circumvent critique and insist upon the old normal returning, as if repeating a mantra were all it took to make it true.

When newspapers shriek that workers must return to the office, despite the reality that many don’t want to, they’re voicing what the sociologist Luc Boltanski called a “system of confirmation” – an utterance that is neither truth nor fact, but rather a way of reinforcing the status quo. But nobody can think that risking their health to save a multimillion pound sandwich chain is a sensible endeavour.

Since the pandemic began, societal changes that were supposed to be impossible have happened with relative ease. Workers were sent home overnight, and it now seems that many can do their jobs, if not fully remotely, then at least partially from home. Already, many people are talking of moving away from big cities to avoid the costs of high rent and long commuting times. And behind the claims of economic catastrophe caused by a drop in commuting, some independent businesses have reported that they are thriving. Instead of asking what will happen to city centres if the commuters never returned, we should be asking: what would the city, and the economy, look like if they weren’t organised this way?

Clive of India was a vicious asset-stripper. His statue has no place on Whitehall

Honouring the man once known as Lord Vulture is a testament to British ignorance of our imperial past writes William Dalrymple in The Guardian 

 

The statue of Robert Clive stands outside the Foreign Office. Photograph: Dan Kitwood/Getty Images


When Robert Clive, who established British rule in India, died by his own hand in 1774, he was widely reviled as one of the most hated men in England.

His body was buried in a secret night-time ceremony, in an unmarked grave, without a plaque. Clive left no suicide note, but Samuel Johnson reflected the widespread view as to his motives: Clive “had acquired his fortune by such crimes that his consciousness of them impelled him to cut his own throat”.

Clive’s death followed soon after two whistleblowers had revealed the scale of the devastation and asset-stripping of Bengal under his rule. “We have murdered, deposed, plundered and usurped,” wrote Horace Walpole. “Say what think you of the famine in Bengal, in which three millions perished, being caused by a monopoly of the provisions by the East India Company?” That summer, a satire was published in London lampooning Clive as Lord Vulture, an unstable imperial harpy, “utterly deaf to every sentiment of justice and humanity… whose avarice knows no bounds”.

Clive was hauled before parliament with calls to strip him of both his peerage and his wealth. The select committee found, in addition to lucrative insider dealing, that “presents” worth over £2m had been distributed in Bengal, and recommended that the “very great sums of money … appropriated” by Clive and his henchmen be reimbursed. Despite escaping formal censure, Clive came to be seen as the monstrous embodiment of the East India Company’s violence and corruption.

But just as statues of defeated Confederate generals rose in the southern United States, long after their deaths, as totems to a white supremacy that was felt to be under threat during the civil rights movement, so, in due course, Clive was subject to an equally remarkable metamorphosis: in the early 20th century, as resistance was beginning to threaten the foundations of the Raj, Lord Vulture was miraculously transformed into the heroic Clive of India. Like the erection of the Confederate statues, even at the time it was a deeply controversial matter. 

In 1907 the former viceroy, Lord Curzon, recently returned from India, threw his weight behind a campaign to erect a memorial to “the Victor of [the battle of] Plassey”. His successor, Lord Minto, already dealing with the serious unrest caused by Curzon’s partition of Bengal, was horrified at the proposal, and called it “needlessly provocative”. The secretary of state for India, outside whose office the statue was to be raised, wearily agreed with Minto and wrote that he was beginning to wish that Clive had been defeated at Plassey.

Today Clive’s statue stands outside the Foreign Office at the very centre of British government, just behind Downing Street. Yet clearly this is not a man we should be honouring today. If at the time many thought the statue should never have been erected, now, as we stand at this crucial crossroads after the toppling of Edward Colston, the moment has definitely come for it to be sent to a museum. There it can be used to instruct future generations about the darkest chapters of the British past.

It is not just that this statue stands as a daily challenge to every British person whose grandparents came from the former colonies. Perhaps more damagingly still, its presence outside the Foreign Office encourages dangerous neo-imperial fantasies among the descendants of the colonisers.

In Britain, study of the empire is still largely absent from the history curriculum. This still tends to go from the Tudors to the Nazis, Henry to Hitler, with a brief visit to William Wilberforce and Florence Nightingale along the way. We are thus given the impression that the British were always on the side of the angels. We remain almost entirely ignorant about the long history of atrocities and exploitation that accompanied the building of our colonial system. Now, more than ever, we badly need to understand what is common knowledge elsewhere: that for much of history we were an aggressively racist and expansionist force responsible for violence, injustice and war crimes on every continent.

We also need to know how far the British, every bit as much as the Germans, helped codify a system of scientific racism, creating a hierarchy of race that put white Caucasians at the top and blacks, “wandering Jews” and Indian Muslims at the bottom. Yet while the Germans have faced up to the darkest periods of their past, and are taught about it unvarnished in their schools, we have not even made a start to this process. Instead, while we understand that the Belgian and German empires were deeply sinister, the Raj, we like to believe, was like some enormous rose-tinted Merchant Ivory film writ large over the plains of Hindustan, all parasols and Simla tea parties, friendly elephants and handsome, croquet-playing maharajahs. 

This has become a real problem. Our vast ignorance of everything that is most uncomfortable about our imperial past is damaging, every day, our relations with the rest of the world. In particular our misplaced nostalgia for our imperial past is encouraging us to overplay our Brexit hand. Contrary to fantasies of Brexiters, our former colonies are not about to warmly embrace us. Nor can we kickstart the empire, as if it were some sort of old motorbike that has been left in a garage for 70 years. The strategy of trying to strike trade deals with Commonwealth countries - dubbed Empire 2.0 by some in the Civil Service – has been a total failure.

Indians, in particular, have bitter memories of British rule. In their eyes we came as looters, and subjected them to centuries of humiliation. The economic figures speak for themselves. In 1600, when the East India Company was founded, Britain was generating 1.8% of the world’s GDP, while India was producing 22.5%. By the peak of the Raj, those figures had more or less been reversed: India was reduced from the world’s leading manufacturing nation to a symbol of famine and deprivation.

Removing the statue of Clive from the back of Downing Street would give us an opportunity finally to begin the long overdue process of education and atonement. In 1947, at the end of the Raj, Indians removed all their imperial statues to suburban parks where explanatory texts gave them proper historical context. We could do the same. Alternately, by placing Clive and others of his ilk in a museum, perhaps one modelled on the brilliantly nuanced and hugely moving National Museum of African American History & Culture in Washington DC, we can finally begin to face up to what we have done and so begin the process of apologising for the many things we need to apologise for. Only then will we properly be able to move on, free from the heavy baggage of our imperial past.