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It’s sad to see such a wonderful effort as this still seeming to not be addressing the fairly clear central problem. A financial system that withholds the use of money unless guaranteed multiplying returns, as is standard investor practice around the world, is simply ill-conceived. I also grant that using money to multiply money is about the only thing a quite large segment of the population want to use it for, but we have to face that clearly indicates a deep and fundamental cultural misunderstanding of what is possible on a finite earth.
As an interesting aside, most people also don’t realize, but Keynes had it really quite clear in his mind, even as others called it “the fallacy”. That the preferred end of growth becomes quite clear when you notice the compounding financial returns becoming unproductive for whole of society, as then it would even be better for the wealthy to spend it on monuments to themselves, than to keep restricting their funds for obtaining ever growing returns from an increasingly struggling world. As he also specifically said, correcting that would rid the world of many of the worst features of capitalism. Of course, where he said it was in his generally unread Chapter 16 of the General Theory, in somewhat obscure language, after years of having the natural principle of it being ridiculed as “the fallacy”, when previously raising the issue with his fable of “the widows cruse” and in his Treatise on Money. It’s sort of a ‘dead letter’, though, as it really was not understood.
I think how we actually solve it does requires we learn a new language, a language of natural design, not a language of theoretical constructs, a “pattern language”. In the patterns of natural design it’s tremendously clear what growth is for. Everywhere you look in nature ‘growth’ is a process by which some living thing builds its own home, as something to take care of, to be its operating base and shelter, and WE are living things, and in real need of a home as well… The purpose of building a home is not for to gamble it away with games of accounting!
Christopher Alexander’s “pattern language” is close to a perfect match to the problem. It’s designed to be used to express “simplifying solutions” to “commonly recurring problems”, for “balancing the forces” involved in a comprehensive manner expressing “living quality”. It only appeared on the world stage in the late 1980’s as a real option for generating new languages for professions to use, as a better way to define their important principles. It’s now a widely spreading methodology for recording and sharing expert knowledge in any field. That makes it a really amazing, if fairly quiet, historic cultural event. It really amounts to offering a practical means of giving people in any field access to the traditional practices of holistic design that architecture has been using for thousands of years.
Outside the architectural world its first major impact has been in revolutionizing the methods of computer programming. It created what is called “object oriented programming”, a very successful method of “stating the objects” of computer programming in terms people can readily understand, quite independent of the code then written to perform the tasks, written so programmers can clearly understand “the objects”. That it is now widely used in programming around the world seems to be one of the big reasons internet development is so successful now, with coding that can be quite flexible, bug free and focused on end results.
A pattern language for economics could begin from a need to understand the object of growth. In nature it’s tremendously clear that the fulfillment of growth for living things repeatedly follows the same pattern, to begin by controlling more and more resources and to end in making a home for the builder…. really. That implies that the “object of using wealth to build great things” (as we’ve been doing) is to actually produce “a home for our way of making wealth”, one that is comfortable and secure and a good place to work from. It also makes it clear why you would take extra care in using an accumulation of wealth to make sure that happens. The objective for growth then changes to making sure the cultures of creativity that produce our wealth are secure, “in their homes”, not the creative calculations but the creative living things.
There are also a great many new kinds of calculations that would be needed too, of course, as part of “taking good care”. My way of presenting it linked below is rudimentary, maybe a bit rambling, but it’s a good scheme for it though. It starts from a simple but thoroughly scientific method for making an inclusive accounting for all the known measurable costs and benefits of the world economy, and as simple way of understanding our own individual shares of the common responsibility we have for taking care of our real home. It rests on the simple principle that every dollar uses the whole economy, and that to do an inclusive accounting you have to first assume any part has an average responsibility for the whole economy’s effects, until you have better information. What is remarkable about what beginning to collect better information shows you, on what any dollar pays for, is that for producing finished goods or services, it seems *never very far from average*, really.
That’s what lets you build a global information exchange that would give everyone with a motive to heal our world, the information needed to both a) understand their share of responsibility for the world, and b) a way to compare the relative values of their choices as choices for the world. As a tool all decision makers can use to understand their decisions for our future, it starts as a very simple way to understand the scale of what needs to happen to secure our creative home on earth, and will get more and more useful as the methods of measurement improve.
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Thank you for hosting this conference, “Ideas Towards a New International Financial Architecture.” Although two papers come close, none presents the prospect for a Single Global Currency, governed by a Global Central Bank within a Global Monetary Union.
Today, there are several successful monetary unions, such as the European Monetary Union and the Eastern Caribbean Monetary Union, from which the Global Monetary Union can be modeled. These exist today and are not based entirely on monetary theory and they do not require a new formulation for a unit of currency.
With the successful use of the euro, despite recent concerns, and other common currencies, more and more people and organizations and nations are seeing the advantages of monetary unions. As shown by the recent accession of Lithuania as the 19th eurozone country, the EMU will continue to be strengthened and continue to grow. Greece is a concern, but it’s a fiscal and governance problem rather than a monetary union problem.
The goal of the Single Global Currency Assn. is a Single Global Currency by the year 2024, the 80th anniversary of the 1944 Bretton Woods Conference, and only nine years away. If one looks at the world 9 years before the development of the euro in 1999 you would have seen in 1990 a Europe which just saw the end of the Soviet Union, East Germany and the Berlin Wall. At that time, most Europeans would have scoffed at the idea of a new monetary union and the abandonment of their historic national currencies. A lot can happen in 9 years.
The benefits of a Single Global Currency include:
– Zero transaction costs to exchange currencies. Presently, $5.3 trillion is traded every trading day, and all this trading and its associated costs, approximately $300 billion annually, can be eliminated.
– The end of currency fluctuations and currency speculation.
– The end of “Balance of Payments”, “Current Account” and “global imbalances” problems for currency areas. There will, of course, still be trade and wealth inequalities; but they will not be compounded by the problem of foreign exchange transactions and reserve requirements. Please know that the two primary problems which led to the creation of the IMF were currency fluctuations and global imbalances and the Single Global Currency will SOLVE both problems.
– The end of the need for foreign exchange reserves, which now total a staggering $10 trillion in under-productive storage in actual or electronic vaults. That money will be more useful when its current function of supporting an obsolete multi-currency system is eliminated.
– Zero manipulation by countries of their currencies, and thus no more need to cajole and jawbone any particular country or currency area about the value of its currency.
– Zero risk of national and regional currency crises such as occurred at the turn of the century in Mexico, Argentina, Malaysia, South Korea and Russia and in 2008 in Iceland.
– Increased international trade.
– Minimal inflation, assuming that the future Global Central Bank sets and achieves a low inflation rate, just as the European Central Bank has done. It’s not clear that a zero inflation rate can be secured, as that would bring an economy perilously close to deflation and possibly a deflation spiral, but certainly a low rate of inflation would be better for the world than the recent average rates.
– An increase in worldwide asset values by about $10 trillion due to the elimination of currency risk. Such an increase in asset values will cause annual worldwide GDP to increase by about $3 trillion.
– Lower worldwide interest rates, due to the elimination of currency risk, and reduction of worldwide inflation.
With zero risk of currency failure and zero manipulation and minimal inflation, the Single Global Currency would satisfy the moral obligation that a stable currency should be considered as a fundamental human right, as is the right to own property. A Single Global Currency would be far more stable than the currencies presently used by billions of human beings
The Single Global Currency might be an enlarged transformation of one of the current major currencies (dollar, euro, yen), perhaps with a new name such as “dey”, “eartha”, “geo”,”globo” or “worldo” or it might be a new currency with such a name. How we get to that point is, of course, a major challenge, but there are several possible routes. One is to continue the current regionalization of currencies, to include North America, and creation, expansion and merger of monetary unions; and then combine those currencies into one. Another is for smaller countries to continue to “ize” their nations’ legal tender, as in “dollarize” and “euroize”, as has been done in Ecuador, El Salvador, Montenegro and the Vatican. Compatible with all these and other routes is the need to convene an international monetary conference of nations, monetary unions and related organizations, and begin planning for the implementation of a Single Global Currency.
The current 193 members of the United Nations now use 139 currencies. Once the “tipping point” is reached where one currency supports approximately 40-50% of the world’s GDP, the movement will accelerate to anoint that currency as the Single Global Currency. Then, other currencies will join quickly. What the people of the world want is stable money. Throughout the current Greek indebtedness controversy, public opinion polls have shown consistently that the Greek people want to keep the euro.
President, Single Global Currency Assn., and
Candidate for Democratic Nomination for President, 2016
P.O. Box 390
Newcastle, ME 04553 USA
There are at least three good reasons not to have a universal currency.
The first is the fact that not all economies grow the same nor from the same starting point, so the productivity needs of the issuing economy ends up defining the currency value whilst there are other economies at the tail end with different credit policy and exchange rate adjustment needs.
Two examples stand out: Greece that is tied to German monetary policy and Ecuador that is ties to the US. They both have stood to lose and are paying dearly for having renounced monetary sovereignty.
Secondly, from Mundell`s classic Optimal Currency Area theory, the world is not one OCA. In the best case it is the sum of many small OCA’s.
Finally, having one currency sounds more like an imperial need of the sixteenth century than a concrete proposal for the future.
I’d agree that different economies should continue to be allowed to have their own currencies. There certainly needs to be better common standards of financial regulation, though.
The most overlooked problem is that we’ve been failing to invent our way out of the direct coupling of economies with the earth, for example. Calling the earth an “externality” was simply a foolish idea. The continual doubling of pressures on all natural systems has become the most destabilizing feature of managing currencies to continually grow. It’s producing multiple and spreading environmental catastrophes due to the impacts continuing to grow in at the same proportional rate to GDP as before.
So the compound expansion of the economy is clearly going to be ended by mounting disasters if we don’t end it ourselves by using the investment resources in a better way. I still think my proposal above is one of those “better ways”. We need the economy to take full responsibility for the impacts it causes, or we won’t have any chance of making the earth a decent home in the future.
I don’t mind the use of a more organized single currency, but it leaves some important things unsolved. The financial system seems certain to become just as unmanageable, again and again, for example, as long as it is expected to provide the service of letting people invest to generate limitless compound growth of financial income.
It invariably leads to instability as the economy attempts to produce growing returns from shrinking things. It’s the age old problem caused by our not taking into account the natural constraints of operating in a natural world, as opposed to a conceptual one where all plans for going to infinity tend to work fine. Some currency designs could eliminate that, yes, but those currencies would always be uncompetitive, compared to ones that let wealth multiply wealth, and naturally grow faster and so naturally take over, as they proceed toward becoming hopelessly unstable.
Any currency still needs a relief valve, is one way to say it, to bleed off excess capital accumulation. It could be taxed or spent, assigned a negative rate of return, or even just retired by fiat. The best option though, would seem to be to tax investor earnings that investors don’t find qualified sustainable uses for…
GDP PPP is a trial to place all national GDPs on a comparable level. Alas GDP PPP criteria do not content GDP in weight (cargo cq freight tables) , as such not delivering the optioned comparability.
Even a world currency would not deliver comparability without freight tables as co-criterium
measure. More-over the complying amount of free liquidities of production companies is either a fallacy in
a GDP result per person could be reached if debts are payed off by fomally permitted free printed liquidties,
whereas as consequence of suppliance of debts within prices, prices are rising.
Correction: the “complying amount” should be : “the absence of complying amounts in world tables..”
Last sentence , i.c fromoff “a GDP…” is to be eliminated as for incomprehensible.
The point of creating a new value unit of reference has todo with the instability exchange rates as a by product over the past seven years of various Quick Easing policies. These have had an external effect in the world economy on commodity prices, exchange rates, real economy growth rates and financial asset prices. The alterations in the value of some national currencies should not neccesarily impact one way or the other the rrest of the world. That is the point of creating a new “world unit of account” against which all currencies can be measured, irrespective of what is happening inside large national economies with their monetary policies.
On the other hand, there seems to be a competition set by the Yuan to try and become a reserve currtebcy, which has enough merits to be one. This reduces the likelihood of any one currency taking over in the foreseeable future. I agree the Euro will remain. The problem of all of Europe including Great Britain, but also the problem in the US and Japan is that with aver 100% of public debt on GDP, the real growth problem has not begun yet. There is a recession while interest rates are at around 0% in real terms. Every 1% of interest rate rise will diminsh puboic spending by 1% of GDP or more. So the outlook is not very bright. The US might swing it as it can isssue all the dollars it wants, but that will again depreciate the currency and send us back to the pre 2013 escenario.
The need for more regional stabilisation funds and economic cooperation is growing. It is important to, learn from the negative European experience that timing is very important. Doing the right thing at the wrong time only complicates matters. There are discretionary elements that must be kept in mind as well as the automatic market responses.
Before starting a world central bank, a la Keynes, when two actors shared the world, it would be important to get global banking supervision and global rules of the game. What we now have is patchwork of domestic law applied abroad and local rules of the game. That is why we have a need for a new global financial architecture.
Thank you for your contribution
None of the papers seems to address the fundamental problem: in advanced capitalist countries, our money almost all consists of debt issued by private commercial banks as loan proceeds in order to obtain interest income. This monetary paradigm is inherently unstable, as it implies quite strong positive feedbacks that central banks must constantly monitor and manage (which they lack the policy tools to do effectively) to smooth the resulting financial cycles. When the instability causes a crisis the central bank can’t manage, the private banks then effectively hold the economy to ransom, demanding that the taxpayer make good their poor risk management and over-issuance of debt in order to avert a deflationary collapse. Executive compensation systems that give private bankers a direct, personal financial incentive to over-issue debt make the debt-money paradigm even more unstable and perverse.
Comment from John Craig ( firstname.lastname@example.org)
I should like to submit that the major problem that needs attention lies in cultural differences that give rise to incompatibilities amongst different domestic systems of financial architecture. Thus in any examination of international financial architecture, the ability of those involved to get to grips with hard-to-understand cultural differences is probably of the highest importance.
Reasons for this were suggested in Structural Incompatibility Puts Global Growth at Risk (2003). This refers to the international impact of the ‘non capitalistic’ systems of socio-political-economy that have been the basis of rapid economic development in East Asia (eg in Japan and China). National savings have been mobilized through state-linked banks and provided to state-linked enterprises with limited regard for return on / return of capital. There has thus been a need for financial repression (ie directing income to production rather than consumption) to ensure current account surpluses and that there is no need for external capital for those state-linked banks / enterprises – because external scrutiny of the suspect bank / corporate balance sheets would trigger financial crises.
The international financial imbalances that the ‘non-capitalistic’ financial systems have required to avoid domestic financial crises have made global growth unsustainable unless their trading partners have been willing and able to sustain large current account deficits / increasing debts. The latter have been made possible in recent decades only because ever-easier monetary policies by their trading partners (especially the US) have boosted asset values (and thus allowed household consumption to exceed incomes) and the raised the apparent ‘affordability’ of ever-larger government debts. However the effect of financial imbalances, ever-rising debts and economic dependence on ultra-low interest rates has generated significant problems (eg see Impacting the Global Economy, 2009 and Putting the Economic Risk of Deflation in Context, 2015).
The need for international financial arrangements to be examined from an Asia-literate perspective has become increasingly urgent over the past couple of decades. Perhaps China’s presidency of the G20 in 2016 will finally allow some real progress to be made (see Will China’s Presidency in 2016 End the G20’s Chronic Failure?).
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Global imbalances could not primarily be blamed to currency fluctuations, but to unequal distribution
of natural resources. A mundo-currency could not solve this problem. A contra-achievement performed as
payment in half-products produced by the buyer of exploited commodities could be, if the cycle is possessed by the same trust. Other contra-achievements could exist in foreign investment in commodity exploitation and backpayment in parts of achieved goods to be traded by the original owner.
One world currency could be reached by eliminating thwarting subjects as unequal rates of
debts, production per caputa in freight weight , import-export relation, natural resources in relation
to exploitation, and free liquidities. Mentioned thwarts could be incorporated in GDP/PPP per capita,
to create a new GDP/PPP ranking to IMF member states’ economies in order to get permission to create an amount of free liquidities or to get dictate to pay taxes on created overmeasure of free liquidities as criterion to maintain membership. Initially every monetary union could access the new world currency, if contractual willing to subject itself to criterions appliccable to maintain membership fromoff access moment. If not willing, every monetary union could of course exist independent of IMF. If no consensus about a rebalancing system incl. free liquidity rate could be reached, a new world currency could be introduced without objections and free membership. A restriction on import rate as not
exceeding the export rate could be maintained to prevent parasytical relations.
One world currency will still not deliver a solution to the head reason to create a new financial architecture : the impossibility to reach a powerfull financial household evitating debts with the means reached by classical economy. These means which could demininuate the debt causing politic are even not appliccated: deflation as answer on inflation, currency volatility in relation to import-export, price deminuation to prevent overproduction . If no interest, a stable currency paired with stable prices could be conceived as a permission to variate other variables, f.i. the new debtless liquidity mass, freed from fear to inflation, to be distributed to debtfull regions connected to production, consumption, governments’services
Oscar Ugarteche´s paper seems to me the most original in this conference in terms of proposals of use for developing countries to deal with the multiple problems of financial globalization and particularly those linked to the monetary dynamics of the future.
Rcent events in Europe, most notably the Greek crisis, suggest that the members of the EU will be intensely engaged in the next few years in reforming their own financial system, which is leading to a bnaking union gradually, but without the essential steps yet in place to begin a fiscal union. Without the latter, the euro and ECB will continue to face renewed crises when countries in Europe face debt problems.
European regionalism will force , developing countries to also develop their own safeguards from a debt, monetary and banking perspective, as the paper by Ugarteche suggests.
In this regards, I think that the double pronged approach by Oscar Ugarteche is correct.
On the one hand to use the G 20 to increase developing country influence over policies and personnel of the IMF including more heterodox economists within that body by taking control of the IMF Institute that is key in contracting new economists each year. In additon by proposing new policy issues and improving debt information and fiscal information, so that everyone really knows what is going on in each country. The IMF technical reports must be made clearer and simpler and provided to the world public interested in the world economy. Finally, any pressure to make SDR´s a possible future world currency are to be welcomed by
member developing countries, to provide some rivalry to dollar, euro and yuan.
Secondly, debate on the regional monetary and banking agreements proposed by Ugarteche and others should be the basis of another future WEA conference.