Do we need one global currency?

From the SMH:

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The World Bank’s former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system, China Daily reports:

‘‘The dominance of the greenback is the root cause of global financial and economic crises,” Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. “The solution to this is to replace the national currency with a global currency.

Lin, now a professor at Peking University and a leading adviser to the Chinese government, said expanding the basket of major reserve currencies — the dollar, the euro, the Japanese yen and pound sterling — will not address the consequences of a financial crisis. Internationalising the Chinese currency was not the answer, either, he said.

“China can only play a supporting role in realising the plans,” Lin said. “The urgent thing is for the US and Europe to endorse these plans. And I think the G20 is an ideal platform to discuss the ideas,” he said, referring to the group of finance ministers and central bank governors from 20 major economies.

The concept of a global “super currency” tied to a basket of currencies has been periodically discussed by world leaders as well as endorsed by 2001 Nobel Memorial Prize-winner Joseph Stiglitz. A super currency could also be tied to a single currency, but the interconnectedness of world financial markets and concerns about the volatility that can occur as a result of the system being tied to one currency have made this idea less popular.

Actually, the idea originated with John Maynard Keynes and his notion of the “bancor” put forth at Bretton Woods but he was rolled by America. George Monbiot explains:

At the UN’s Bretton Woods conference in 1944, John Maynard Keynes put forward a much better idea. After it was thrown out, Geoffrey Crowther – then the editor of the Economist magazine – warned that “Lord Keynes was right … the world will bitterly regret the fact that his arguments were rejected.” But the world does not regret it, for almost everyone – the Economist included – has forgotten what he proposed.

One of the reasons for financial crises is the imbalance of trade between nations. Countries accumulate debt partly as a result of sustaining a trade deficit. They can easily become trapped in a vicious spiral: the bigger their debt, the harder it is to generate a trade surplus. International debt wrecks people’s development, trashes the environment and threatens the global system with periodic crises.

As Keynes recognised, there is not much the debtor nations can do. Only the countries that maintain a trade surplus have real agency, so it is they who must be obliged to change their policies. His solution was an ingenious system for persuading the creditor nations to spend their surplus money back into the economies of the debtor nations.

He proposed a global bank, which he called the International Clearing Union. The bank would issue its own currency – the bancor – which was exchangeable with national currencies at fixed rates of exchange. The bancor would become the unit of account between nations, which means it would be used to measure a country’s trade deficit or trade surplus.

Every country would have an overdraft facility in its bancor account at the International Clearing Union, equivalent to half the average value of its trade over a five-year period. To make the system work, the members of the union would need a powerful incentive to clear their bancor accounts by the end of the year: to end up with neither a trade deficit nor a trade surplus. But what would the incentive be?

Keynes proposed that any country racking up a large trade deficit (equating to more than half of its bancor overdraft allowance) would be charged interest on its account. It would also be obliged to reduce the value of its currency and to prevent the export of capital. But – and this was the key to his system – he insisted that the nations with a trade surplus would be subject to similar pressures. Any country with a bancor credit balance that was more than half the size of its overdraft facility would be charged interest, at a rate of 10%. It would also be obliged to increase the value of its currency and to permit the export of capital. If, by the end of the year, its credit balance exceeded the total value of its permitted overdraft, the surplus would be confiscated. The nations with a surplus would have a powerful incentive to get rid of it. In doing so, they would automatically clear other nations’ deficits.

When Keynes began to explain his idea, in papers published in 1942 and 1943, it detonated in the minds of all who read it. The British economist Lionel Robbins reported that “it would be difficult to exaggerate the electrifying effect on thought throughout the whole relevant apparatus of government … nothing so imaginative and so ambitious had ever been discussed”. Economists all over the world saw that Keynes had cracked it. As the Allies prepared for the Bretton Woods conference, Britain adopted Keynes’s solution as its official negotiating position.

But there was one country – at the time the world’s biggest creditor – in which his proposal was less welcome. The head of the American delegation at Bretton Woods, Harry Dexter White, responded to Keynes’s idea thus: “We have been perfectly adamant on that point. We have taken the position of absolutely no.” Instead he proposed an International Stabilisation Fund, which would place the entire burden of maintaining the balance of trade on the deficit nations. It would impose no limits on the surplus that successful exporters could accumulate. He also suggested an International Bank for Reconstruction and Development, which would provide capital for economic reconstruction after the war. White, backed by the financial clout of the US treasury, prevailed. The International Stabilisation Fund became the International Monetary Fund. The International Bank for Reconstruction and Development remains the principal lending arm of the World Bank.

It is an earth shattering idea.

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Comments

  1. If we’re talking about something gold and/or silver based, then that’s a proven system.

    However, if we’re talking about a single, global fiat currency then I doubt my vocabulary is large enough to sufficiently convey what a moronic idea it is and how bleak will be the outcome for humanity.

      • A fiat currency would be issued by a state-like entity. At the very least, states would appoint members to the issuer.

        Consider the wreckage done by the incestuous relationships between financial companies, academia and central banks to date. Now imagine this in an utterly uninhibited global scale.

        How is the management of this issuer decided? If it is drawn from each nation state, how is that determined? There is no good solution. Perhaps an incompetent mob or the usual suspects run amok. Probably the latter.

        Now consider the co-ordination of national economic policies and monetary policy. Happy fun to be had there. Suppose some merger of rule occurred. There’s nothing quite like a single point of failure, whether it fails due to incompetence or through the usual human flaws. However, it would probably be that some merger or transnational arrangement would be made.

        To believe that a bigger than everything that has gone before government would somehow be more competent and virtuous than smaller governments is wishful, to put it mildly. Such power, such corruption. It would not end well.

      • I think Fiat currencies are great and gold/silver are a proven failure so I think Moody and I are at opposite ends of the spectrum on this but I can give an explanation.

        If it’s just a global currency then we end up with a big EU. Which is a disaster. No internal exchange rates to adjust prices and no control over the the currency either.
        Even the US is having problems with the state budgets for much the same reason.

        But what Keynes proposed looks to be very different from just a big world currency. So might work better, I’d need to study that seriously before I could really guess if it would work, but it certainly sounds a LOT more sensible than the EU setup..

    • Global population growth have outstripped the amount of gold and silver being mined, and if you resort to printing ‘paper gold’, then it just becomes another fiat currency.

      • You do not understand the mechanics of a gold standard. 100% gold reserves were rare historically.

      • Ronin8317MEMBER

        It doesn’t need to be 100%, but the ratio must remain relatively fixed.

        Suppose that gold can somehow be ‘created’ from thin air when a nation divert its resources to produce it, then a gold standard can work. However, when the amount of gold become fixed, a country can literally ‘run out of money’, and it encourages capital outflow whenever the exchange rate of a country weakens. That is why the entire world ended up abandoning it.

      • Gold is already rigged – by the Fed – who else.

        Most gold to market is already PAPER. Please read article from MB links about 17th Jan – “Hows and whys of gold price manipulation” – Paul C Roberts. ( Institute for Political Economy )

        I too naively thought Gold / Silver were the only “pure market” assets – once.

      • @Ronin8317

        Your assertion that the size of the monetary base is limited by the amount of gold held is a common misconception.

        The monetary base can expand and contract in an economy using a gold standard. What is fixed in a gold standard is the value of the currency against gold.

        The world did not abandon the gold standard because there was not enough gold to go around. That statement is plain wrong. Nathan Lewis writes some informative articles about the gold standard and the mechanisms involved. See:

        http://www.forbes.com/sites/nathanlewis/2012/02/16/the-gold-standard-and-the-myth-about-money-growth/

    • The world needs free currency and free banking – the world needs freedom. The question in this article in essence boils down to “does the world need tyranny?”.

  2. Lin, now a professor at Peking University and a leading adviser to the Chinese government, said

    Look at my right hand say the Chinese we want a new global paper currency.
    Don’t look at my left hand, it is busy buying gold.

  3. World currency is a silly idea because we already have one its called the USD. what we dont have is a real-time way to recognize the creation and destruction of economic value by countries. Is the pie really growing or shrinking? These are the impossible questions but all that really counts when the world tries to decide, semi real time, how big a slice each of us is due.

    Bancor and most forms of SDR require some forced balancing of the current account flows, lets face it the banks are never going allow that to happen, so it’ll be business as usual until the next war (map major wars over the changing of reserve currency graph to see what I mean)

    • World currency is a silly idea because we already have one its called the USD.

      And thats the problem. More specifically it is a world currency controlled almost exclusively by the US.

    • New World Order comes one step closer.

      Btw don’t confuse Freemasons with this global power beast, most local lodges would be flat out running the local IGAThe Rothschilds

         “The few who understand the system, will either be so interested from it’s profits or so dependant on it’s favors, that there will be no opposition from that class.” — Rothschild Brothers of London, 1863

        “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild
       

  4. I support a one-world government as long as I get to be that government.
    Similarly I support a one-world currency as long as I get to print that currency.

  5. The bancor proposed by Keynes sounds quite different to just ‘moving to one currency’.

    Moving to one currency seems to have all sorts of problems surrounding who sets the monetary policy for that currency, and thus, the globe. The bancor seems to be more a system of forcing creditor nations to reduce their trade surplus, and forcing debtor nations to reduce their trade deficits. In principal it sounded like each nation retained its own domestic fiscal authority but trade occurred through a new currency with specific provisions to prevent long-term deficits and surpluses from eroding nations.

    Keynes’ idea sounds great to me, but I suppose the devil is in the details isn’t it.

    • +1

      I’m a BB & absolute economics novice, it seems that the world has two major issues, the yanks are printing Debt and Chinese won’t transition to a consumption economy.

      Could the better informed tell me why this theory wouldn’t have addressed both these issues??

  6. Americans like other humans cannot be trusted with seigniorage.

    That’s why a future global currency needs to be embedded into an incorruptible, peer to peer protocol.

    Bitcoin is that protocol. It is value transfer between individuals without requiring trust in a third party.

  7. “The dominance of the greenback is the root cause of global financial and economic crises.”

    Utter BS. Usury is the root cause.

    And being a World Bankster, I would posit a fair likelihood he knows it.

    “Actually, the idea originated with John Maynard Keynes and his notion of the ‘bancor'”

    Yes, let us all jump aboard with the “notion” put forward by the same (sick, vile, sociopathic) man who wrote this:

    “I see us free, therefore, to return to some of the most sure and certain principles of religion and traditional virtue – that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow. We shall once more value ends above means and prefer the good to the useful. We shall honour those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things, the lilies of the field who toil not, neither do they spin.

    But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.”

    – John Maynard Keynes, Essays in Persuasion – The Future

    http://www.interestfreemoney.org/papers/extract-keynes-essays.htm

    Global totalitarianism (via total control of “money”) … brilliant.

      • Er … ?!? Perhaps you didn’t notice.

        Yes, he began by recognising the truth that usury = bad. Along with avarice, and love of money.

        But then, despite recognising that these = bad (“foul”) “means”, nevertheless warned that these “must be our gods”. For “at least another 100 years”. Also, that “we must pretend”, “to ourselves”, “and to everyone”, that “fair is foul and foul is fair”.

      • That would be your interpretation.

        If that article was published in 1946, that is AFTER the World Bank, IMF and Breton Woods was established.

        He lost the argument and what we got was usury from the creditor.

        The wording is just poetic reality of the times.

        As I understand his proposal, its some kind of gold standard that attempts to stop currency/trade wars that arise from trade inbalance.

  8. I think we will eventually have a single global currency – the SEMU.

    its like languages – we start off with lots of them and then eventually we get English or Globish.

    I think we are discussing the currency equivalent of Esperanto

  9. Look at the mess with the Euro. A global currency will ensure that the mess will be much, much worse.

  10. Perhaps i am biased based on my job, but i find this talk of a ‘global currency’ a tad amusing. We’ve had one before, it was called gold. In fact we’ve used it as a global currency for the majority of the past few thousands years.

    That image at the top is interesting in that it shows the rise and fall of empires and the worlds most powerful nation states, but they pretty much all used gold as money, or at least did when they were at the proper heights of their power.

    Even the USA did, which had the better part of 20,000 tonnes of gold in its possession when it was at its proper peak (several decades back).

    It is not an earth shattering idea IMO to effectively have a global currency, it is only earth shattering if you think it should be controlled by some political body (the UN) and that it should be FIAT.

    I think the biggest thing people overlook when it comes to money (most can name the qualities that money should have, divisability, durability, and that it must facilitate commerce etc) is that money is essentially a measuring stick.

    It’s no different to a metre measuring length, or a kilo measuring weight. The idea that we need a government body, or Davos forums and the like to come up with new money is about as sensible as coming up with a new measurement for length, time, weight or volume.

    Measuring sticks are not meant to change, and this whole idea that we can play games with money itself is highly dangerous.

    im a big fan of Matthew Mclennan’s thoughts on this, who was interviewed by Chris Joye last year in the AFR. He was talking about why we aren’t/won’t see a proper global economic recovery.

    The interview is here, and the MB forum mentioned it at the time, but his thoughts on the USD, and on gold are worth looking at!

    http://www.afr.com/p/business/financial_services/interview_transcript_first_eagle_qgIOfuxoKGFCgUuKQDbUaM

    Bottom line, we are in the mess we are in due to centralisation and political control of the issuance of money. More centralisation will only exacerbate the trend and the problems.

    • -1
      The GFC was caused by a lack of Gov control through the deregulation of the banks.

      This common mantra holds no weight when you look at the who is making money now, the banks and big end of town.

      Gov.’s are held hostage by the too big to fail banks and the out of control usery system where there is private profit and public debt.

      If the control is not vested in a body like the UN then WHO? the banks or maybe the top 1% (they know how to use money as the own 50% of the worlds wealth).

      • When he says centralisation and political control of the issuance of money, I was thinking primarily of the reserve banks who no doubt have politics at the heart of their decisions and nobody to control them except the banks.

      • This is a chicken and egg issue, is the reserve bank directing it’s own agenda or is it making policy in order to massage the manner in which the banks use their money.

        For one, there are many posts on these pages that promote the idea of macro intervention to restrict the out of control banks inflaming the housing market.

        Do you truly believe to hand control to those that bought the world to the brink and made us pay for it wouldn’t do it all again?????

      • One reason the Swiss system of democracy is so effective is that there is little concentration of power. There aren’t many who can be got at & broken down by special interest groups. Most anything of importance goes to a referendum of the people – so they have less chance of being hijacked in any way.

        To me at least any concentration of power raises the risks of corruptibility & changing of laws to favour vested interests, like the Glass Steagall repeal that has contributed to the current mess.

      • There is a concentration of power already in the form of the Too Big To Fail Banks.

        Some American facts (thanks Rolling Stone)
        New income generated since 2009 that has gone to the top 1 percent: 95 percent

        2. Financial wealth controlled by the bottom 60 percent of all Americans: 2.3 percent

        3. Record combined wealth of the top 400 richest Americans: $2,000,000,000,000

        4. Real decline in median middle-class incomes since 1999: $5,000

        There is your depiction of how the powerful are concentrating their power.

        There has to be a better system to provide proper returns for effort.

      • Mark, I’m a bit confused. Are you talking from both sides of the songbook here, or are we both talking about the same thing – concentration of power?

        “If the control is not vested in a body like the UN then WHO? the banks or maybe the top 1%”

        Do you think the UN or any small unit devoid from reality is incorruptible, or has the necessary teeth to bite the corruptors?

        “Do you truly believe to hand control to those that bought the world to the brink and made us pay for it wouldn’t do it all again?????”

        Sociopaths are sociopaths despite whatever flag they parade in!

        Maybe I’m reading it wrong – but these comments seem contradictory to me.

        FWIW, I perceive TPTB to all be pretty much the same entity with ‘apparrent’ different heads – & certainly not untouchable!

      • The UN is a body that has “some” inbuilt transparency, as opposed to the present system of the TBTF banks that have none.

        The system is being gamed by the big end of town as shown by the facts about America (Australia is very similar).

        I’m not a follower of the UN, illuminati, freemasons, rothschild, conspiracy theorists.

        The UN is as active as the opposing forces that it has to placate, but at least it’s charter is to be open, accountable and benefit all, so I believe that the UN would be a good start.

        So Nudge I’m not batting my own ball back over the fence.

        The argument here is that should we have some overarching body will be penalise both the profligate and the miserly for their misdemeanors. I think it’s a good idea and the UN would be a good start from the options available.

      • Thanks Mark, I now get what you’re saying.
        I still have a problem with concentrating power in any marketplace I can think of. One of the reasons is because a concentration of decisions & group think can have unintended consequences that a ‘local’ could have pointed out. Perhaps some not so unintended ones that went conveniently ‘unheard’ as well……

        Monopolistic behaviour & cornering markets. Also poachers turned gamekeeper etc. If it were part of their charter that stopped revolving doors, secondments, heavy jail time & stripping of assetts for any approaches & for anyone proven to be bent, then I would have less to be suspicious of, but human nature being what it is – there’d be some way to pervert it!

        If it were to happen perhaps you’re right re the UN? I agree we have to start somewhere, the US hegemony has run it’s course for way too long already & we don’t need to just plug in a new imperialist & repeat the usual garbage to the detriment of most of the worlds peoples.

    • I think it’s worth considering that just like when performing other measures, different tools are used depending on the size of the job at hand. For example you wouldn’t use a truck scale to weigh out the ingredients for cooking.

      Likewise it’s worth considering that the money used to settle trade at the central bank/country level might not be the right money for use in every day consumer transactions.

      The money used to settle global trade is best not linked to a specific country. Gold may fill this role nicely.

      As for daily transactions, they might be best performed with money which can be managed as appropriate for the conditions of the local environment.

      I think fiat has a future. I think gold has a future. I don’t think they need to be linked (e.g. classic Gold standard) in order to fulfill their purpose.

  11. “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Bauer Rothschild