| Monetary Reform: Big and Global vs Small and Local |
|
|
|
Following China’s recent call for a new global currency to replace the dollar, progressive economists outline alternative proposals for monetary reform based on a more localised, accountable and democratic financial system. 10th April 09 ~ STWR The call by China for a new global currency controlled by the International Monetary Fund (IMF) was made in mid-March ahead of the G20 summit, stepping up the pressure on global leaders to make changes to a financial system dominated by the US dollar and Western governments. The proposal, made in an essay by the Chinese central bank governor, argued that the global financial crisis requires "creative reform of the international monetary system towards an international reserve currency". Such a move would give developing countries more influence in the IMF, the World Bank and other finance bodies, and shake up the balance of economic power to favour emerging economies like China and other poorer nations. As Mark Braund comments in the article below, that such an alternative is being taken seriously at all - boasting support from India, Russia and Brazil - is a mark of fundamentally changed times. The way to a more just and inclusive world starts with some levelling of the global economic playing field, and the creation of a global reserve currency may be an essential step in that process. But Braund also points out that China's motivation may be less a desire for global socio-economic justice, and more an inclination to protect China's interests and retain the national benefits of the country's recent ‘economic miracle'. A better alternative, says Braund, could be the idea of economic philosopher Richard Douthwaite, who conceived of an international currency unit based on the global resource whose use is preferably minimized: energy. The ebcu, as Douthwaite calls it, would function as an energy-backed international reserve currency. The new economist Ann Pettifor is pessimistic about the capacity of the G20 leaders to bring about meaningful economic reform. Arguing that the unstable, global financial and trading architecture which underpins the present crisis can't be rebuilt, her answer is to restructure and downsize the system. Only by making financial institutions more localised and accountable can we keep an eye on the "cowboys of the banking system" - which requires breaking these institutions down into "smaller pieces". Pettifor is not alone in advocating solutions to the financial crisis at a local level. Hazel Henderson sees great promise in the scope of ‘people-to-people' finance and community alternatives to the unregulated, large-scale remit of Wall Street. Numerous examples illustrate her point, such as the microfinance projects that are booming in many developing countries, or the local barter-clubs like Freecycle.com or Craigslist where people can share and exchange on equitable terms. Henderson urges us to go beyond the limited definition of wealth in terms of money - rather, real wealth is generated through the fair and sustainable use of the Earth's resources. As her examples of healthier homegrown economies reveal, people are already embracing the necessary values to reframe economics in truly democratic terms beyond the money-centric concerns of big business and globalised finance. Fuelling a new world money supply - Mark Braund Too Soon to Declare a New World Order - Ann Pettifor Democratizing Finance - Hazel Henderson China Calls For New Global Currency - ABC News Fuelling a new world money supply 9th April 09 - Mark Braund, The Guardian (UK) A paper written ahead of the recent G20 summit by Zhou Xiaochuan, governor of the Chinese central bank, caused quite a stir. Zhou called for the establishment of a global reserve currency, a step which would firmly tip the balance of economic power in the direction of emerging economies like China and India, but would also bring benefits to poorer nations in the developing world. Until recently such a suggestion would have been dismissed by the major powers. It's a sign of fundamentally changed times that it's being taken seriously in many quarters, gaining support from India, Russia and Brazil and even an equivocal response from US Treasury Secretary, Tim Geithner. Two very obvious changes have prompted this reaction: First, there is a growing recognition that the course towards the current crisis was plotted when President Nixon severed the link between the dollar and gold in 1971. Second, the fact that, quite unlike any president before him, not only does Barack Obama believe in a more just and inclusive world, he also seems to recognise that creating such a world requires some levelling of the global economic playing field. The creation of a global reserve currency would be an essential first step in that process. In his paper, Zhou succinctly defines the qualities of an effective reserve currency: it should be anchored to a stable benchmark; its issue should be subject to clear rules so as to ensure an orderly supply; that supply should be flexible enough to permit adjustment as global demand for money changes; and it not should be linked to the currencies of any particular nation or nations. Zhou cites Keynes' Bretton Woods proposal for a super-sovereign currency – the bancor – the value of which, Keynes urged, should be linked to a basket of 30 commodities in order to insulate it from the the economic conditions and policy decisions of individuals nations. Back in 1944, the United States was not prepared to subordinate the dollar to a global currency over which it would have little control. Instead, the world settled for a system under which everyone fixed their exchange rates to the dollar, which was in turn linked to gold. That system lasted nearly three decades; but only now, nearly 40 years after its collapse, is anyone acknowledging the need to replace it. Currently five currencies – the dollar, the euro, the yen, sterling and the swiss franc act as reserve currencies. But with 65% of global foreign exchange reserves held in dollars, and with China holding more than a $1tn of these, no wonder the Chinese are getting jumpy. They fear the Obama administration's attempts to spend its way out of recession will erode the value of their foreign reserves. By switching to a neutral reserve currency before the spectre of inflation raises its head, their hard-earned savings would be protected. But the United States is unlikely to give up its reserve currency status without a struggle because it carries immense economic advantages, not least the capacity to run the kind of budget and current account deficits which would cripple other nations. Zhou's motivation is not a desire for greater global economic justice. It is, understandably, to protect China's interests at a time when millions of Chinese have yet to experience the benefits of his country's recent economic miracle. Russia's motivation is even more transparent: Dmitry Medvedev suggested that any new reserve currency should be at least partially backed by gold. As one of the world's leading producers of gold, this would put Russia at a distinct advantage. In the Telegraph, Ambrose Evans-Pritchard is not persuaded. He believes "the politics of global monetary management would be poisonous". But this misses the point. A reserve currency would only work if there was a widespread commitment to moving the global economy towards one in which co-operation between nations, rather than competition, was the defining feature. If the outcome of efforts to escape global recession is simply a return to business as usual, then a new reserve currency will have no chance. But even Evans-Pritchard concluded that "10 years hence the picture may look different, a world currency may come into being". That being the case, it should be done properly and for the right reasons. Zhou's suggestion that the IMF's special drawing rights (SDRs ) – a quasi currency established by the IMF in 1969 to try and save the ailing Bretton Woods system – should form the basis of a new reserve currency is unambitious and gives additional power to an institution too closely associated with the Washington consensus that systematically undermined development in the poorer nations. A better idea comes from the economic philosopher Richard Douthwaite. In his 1999 briefing for the Schumacher Society, the Ecology of Money, he argued that "an international currency should be based on the global resource whose use it is highly desirable to minimise". Today, obviously, that resource is energy. Douthwaite therefore suggests an energy-backed currency unit, or ebcu, as the international reserve currency. His excellent pamphlet can be downloaded for free, here. His proposal to link the international monetary system to the need to reduce carbon emissions, thus promoting both economic stability and environmental sustainability, is an idea whose time has surely come. Too Soon to Declare a New World Order 3rd April 09 - Ann Pettifor, The Huffington Post We will not know for six months or even for six years whether or not this G20 Summit has been a success. But what we can be sure of is this: it will not create a 'new world order.' Indeed I believe it could be worse. I am willing to bet that the Group of 20 leaders will very likely fail in their aim of stabilizing the global economy. The Summit Communique makes plenty of fine noises about being kind to the poor. Once again there are promises of $1 trillion for boosting lending to poor countries and export support for these countries. There were similar sound-bytes, and similar commitments made at the Edinburgh G8 Summit in 2005 - commitments yet to be fully honored. Second, and as if to hide their disagreement over the really big issues (a global fiscal stimulus, and more stringent regulation of the financial system) much was made by Gordon Brown of the re-financing of the IMF -- the most loathed and marginalized of international financial institutions. The motivation is clear: the IMF is a Euro-Atlantic institution, and the Europeans want its finances bolstered so that the economies on the fringe of Europe -- like Hungary, Latvia, Ireland, Iceland and Greece -- can be prevented from bringing down the whole of the European project, and with it the Euro. The IMF is largely irrelevant and shunned by Latin American and particularly Asian countries. Many of the countries I have worked with struggled to get out from under its inflexible economic austerity, and abhorred its double standards. (Fiscal stimulus for the rich countries, austerity for the poor.) Especially after the disaster of the 1998 financial crisis, in which the IMF's approach and policies accelerated the collapse of banks, the rise in jobless numbers and the impoverishment of millions. When Mexico, Brazil, Singapore and Korea recently needed financing - they did not go to the IMF, but to the US Treasury, as Devesh Kapur and Arvind Subramanian noted recently. So propping up an institution that is largely marginal to this crisis does not convince me that G20 leaders are serious about salvaging the international financial system. But then how can we expect them to be? Asking the G20 to fix the international financial architecture is counter-intuitive. Like asking a bunch of cowboy builders to re-build the gutted kitchen, illegal loft conversion and rumbling extension of a collapsed McMansion home. They just can't do it. The McMansion that is globalization -- or global financial de-regulation -- was built on shaky foundations by these and previous G20 leaders and their central bankers. After thirty years, it has collapsed and left behind piles of rubble, financial angst and heartache. This is because of the way it was designed, project-managed and constructed -- by most of the political leaders arrayed before us at the Summit in London. They cannot remedy the calamity of its collapse. All they want to do is to cover up the botched building works. They are all working hard to rebuild the existing, dodgy, financial McMansion while making sincere efforts to help the poor - and at the same time doling hand-outs to their 'mates' in the financial sector. The fact is that our unstable, global financial and trading system can't be rebuilt. We need to downsize the system. To break it down into smaller pieces. We need to re-structure banks, and fire their managements -- just as the President fired CEO Wagoner of General Motors. We need to separate deposit-holding institutions from gambling outfits. To make banks and financial institutions, and capital, more localised and accountable. It will be easier to keep an eye on them if they are small and local. Big and global is hard to monitor, to hold to democratic account and to regulate. We need to remove the moral hazard caused by encouraging and subsidizing the cowboys of the banking system -- so that they may smash up more banks, business and individual lives. We must end the expropriation of taxpayer funds, and stop flushing taxpayer money into bonuses and dodgy off-shore bank accounts. Above all we need to regulate the cowboys. And where appropriate, prosecute those that have acted criminally. All this is needed, but cannot be done by these particular G20 leaders, their Treasury Ministers and their economic advisers. They are too responsible for the current mess. They lack the vision to make democracy meaningful. So the failure of this expensive Summit may be a good thing. Why? Because then, just as the failure of the 1933 World Economic Conference brought good news and a renewed world leadership (Roosevelt) so it might be possible for a new leadership to begin to work for a real transformation of the global economy. Back in 1933 the World Conference of political leaders fought desperately to prop up the pre- 1929 financial architecture -- in particular the 'barbaric relic' that was the Gold Standard. They failed. Roosevelt had boycotted the World Conference, and soon after it approved the dismantling of the Gold Standard. Immediately unemployment fell, and prospects improved. The likely failure of the G20 Summit may therefore give us hope: that there will soon be intellectual and political space for a renewed leadership -- and for the building of a new, more sustainable, accountable and ethical financial architecture. That will green our economy, stabilize our financial system, create jobs and restore peace and security. A global economy that will once more make democracy meaningful. 9th April 09 - Hazel Henderson, Inter Press Service The financial meltdown generated by Wall Street and the "too big to fail" culture of global money-center banks and financiers is generating local initiatives and demands to decentralize and democratize finance. Meanwhile, at the global level, the G-20 countries' demands to democratize the voting structures of the IMF and the World Bank are essential to reflect the changing balance of economic power. The G-7 and G-8 group of countries are no longer relevant now that the G-20 group (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States of America, and also the European Union) has taken center stage. While national safety-nets are unraveling due to budget cuts, local leadership is rising, offering many creative alternatives for communities to nurture healthier homegrown economies:
How far can people-to-people finance go in bypassing big, greedy banks and ethically challenged Wall Street financiers and their political allies? A long way, thanks to all the communications tools now widely available. Using these new information-sharing tools is helping people realize again what money is: just one form of information. Today it is possible to trade using pure information exchange. For example, in rural areas in Florida, radio stations have call-in programs where farmers can say "I have spare time on my tractor to exchange for fertilizer or pepper, melon, eggplant seeds." The farmer gives her phone number and the trades are exchanged off-line. Similarly, the growth of farmers' markets and contract-supported agriculture allows local consumers to buy fresh produce directly from nearby farms. All these local solutions and people-to-people safety-nets raise the question "How did we allow big banks and centralized finance to grow so large that they become predators on the real living economies which produce the world's real wealth"? Local people around the world are realizing that they can simply bypass big banks, stock exchanges and create all these services locally. The old, bloated financial sectors must downsize, cut their bonuses and take the losses from their reckless bets in their global casino. A truly efficient financial services sector should be less than 10% of a country's GDP. Those in Britain and the USA grew to 25% of GDP, metastasizing with their "financial engineers" preying on the real economy. Now students are looking for jobs as real engineers, teachers, doctors and entrepreneurs. In a very real sense, we humans don't have a financial crisis but a crisis of perception. We are beginning to see our world differently than mainstream media portrays. We see our choices with new eyes. We know that money is not real wealth. We learn as we watch central bankers printing money on TV. Real wealth is generated by productive people using the Earth's resources wisely. Money is a great invention. When it is managed properly, locally, nationally, globally or electronically, it is a useful medium of exchange. Hoarding money is no longer a reliable store of value. We are all rediscovering the many stores of value in our own communities. We find wealth beyond money. We can change our values for the new times we live in and restore the love economies to their central role in our lives. China Calls For New Global Currency 24th March 09 - Joe McDonald, ABC News China is calling for a new global currency controlled by the International Monetary Fund, stepping up pressure ahead of a London summit of global leaders for changes to a financial system dominated by the U.S. dollar and Western governments. The comments, in an essay by the Chinese central bank governor released late Monday, reflects Beijing's growing assertiveness in economic affairs. China is expected to press for developing countries to have a bigger say in finance when leaders of the Group of 20 major economies meet April 2 in London to discuss the global crisis. Gov. Zhou Xiaochuan's essay did not mention the dollar by name but said the crisis showed the dangers of relying on one nation's currency for international payments. In an unusual step, the essay was published in both Chinese and English, making clear it was meant for an international audience. "The crisis called again for creative reform of the existing international monetary system towards an international reserve currency," Zhou wrote. A reserve currency is the unit in which a government holds its reserves. But Zhou said the proposed new currency also should be used for trade, investment, pricing commodities and corporate bookkeeping. Beijing has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any steps in response to the crisis that might erode the value of the dollar and Beijing's estimated $1 trillion holdings in Treasuries and other U.S. government debt. The currency should be based on shares in the IMF held by its 185 member nations, known as special drawing rights, or SDRs, the essay said. The Washington-based IMF advises governments on economic policy and lends money to help with balance-of-payments problems. Independent economists have suggested creating a new reserve currency to reduce reliance on the dollar but acknowledge that would face obstacles. It would need acceptance from governments that have relied on the dollar for decades and hold huge stockpiles of U.S. currency. China has pressed for changes to give developing countries more influence in the IMF, the World Bank and other finance bodies. G20 finance officials issued a statement at their last meeting calling for such changes but gave no details of how that might happen. Russia also has called for such reforms and says it will press its case at the London summit. Zhou said the new currency would let governments manage their economies more efficiently because its value would not be influenced by any one nation's need to regulate its own finance and trade. "A super-sovereign reserve currency managed by a global institution could be used to both create and control global liquidity," Zhou wrote. "This will significantly reduce the risks of a future crisis and enhance crisis management capability." Zhou also called for changing how SDRs are valued. Currently, they are based on the value of four currencies - the dollar, euro, yen and British pound. "The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies," Zhou wrote. "The allocation of the SDR can be shifted from a purely calculation-based system to one backed by real assets, such as a reserve pool, to further boost market confidence in its value." |
The Issues
 |
Share The World's Resources |
Phone |
A not for profit organisation with Consultative Status at ECOSOC. |
|
|