William Pfaff: New IMF Reserve Currency May Be Answer
...the orthodoxies of an obsolescent era continue to contradict one another. The canonical IMF-style remedy for nations with the kind of difficulties that prevail from London to Madrid and on to Athens is national austerity, budget cuts and reduced social spending. Equally orthodox is for governments at the same time to do everything possible to encourage people to spend, so as to fuel demand for industrial goods, and the widest possible consumer consumption. To spend, consumers need the same money austerity is taking away from them, or preventing them from earning. Economists and officials obviously are aware of this dilemma but see no orthodox way out of it other than by deepening budget deficits, which not every country can afford. The European Central Bank has just given Athens a year to master its deficit, which may not be possible. ...This is not too hard a problem to solve. You create [a new global currency]. Stiglitz is calling for a new issue by the International Monetary Fund of what has been called Special Drawing Rights (or "Bancor," which is what John Maynard Keynes, who first thought of it, called the fresh creation of imaginary money). ...Stiglitz says that it would be rather like declaring that a massive goldmine has been discovered under the IMF building, yielding perhaps $600 billion a year. In accordance with a particular formula based on their income, the IMF would send out letters to its members telling them how much of this gold they own, and that they should begin augmenting their currency supply, to be backed by this gold, in full confidence that the new money will be honored. "All that matters is trust, the willingness of governments to exchange the paper gold." World liquidity would be vastly increased, demand multiplied, industry resume production.
Equally orthodox is for governments at the same time to do everything possible to encourage people to spend, so as to fuel demand for industrial goods, and the widest possible consumer consumption. To spend, consumers need the same money austerity is taking away from them, or preventing them from earning.
Economists and officials obviously are aware of this dilemma but see no orthodox way out of it other than by deepening budget deficits, which not every country can afford. The European Central Bank has just given Athens a year to master its deficit, which may not be possible.
...This is not too hard a problem to solve. You create [a new global currency]. Stiglitz is calling for a new issue by the International Monetary Fund of what has been called Special Drawing Rights (or "Bancor," which is what John Maynard Keynes, who first thought of it, called the fresh creation of imaginary money).
...Stiglitz says that it would be rather like declaring that a massive goldmine has been discovered under the IMF building, yielding perhaps $600 billion a year. In accordance with a particular formula based on their income, the IMF would send out letters to its members telling them how much of this gold they own, and that they should begin augmenting their currency supply, to be backed by this gold, in full confidence that the new money will be honored. "All that matters is trust, the willingness of governments to exchange the paper gold." World liquidity would be vastly increased, demand multiplied, industry resume production.
Stiglitz: Thanks to the Deficit, the Buck Stops Here
The United Nations' Commission of Experts on Reforms of the International Monetary and Financial System...has argued that a new global reserve currency system may be the most important reform to ensure the long-term health of the world's economy... In its interim report in June, the commission described a number of alternatives. Some involve building on the International Monetary Fund's "special drawing rights," or SDRs -- a kind of "IMF money" -- but making the issuance of this global reserve money annual and more predictable....Other proposed reforms are more complex and ambitious, such as issuing new global reserves in ways and amounts that could be used to stabilize the world's economy or to invest in "global public goods," such as helping developing nations reduce greenhouse gas emissions.
In its interim report in June, the commission described a number of alternatives. Some involve building on the International Monetary Fund's "special drawing rights," or SDRs -- a kind of "IMF money" -- but making the issuance of this global reserve money annual and more predictable....Other proposed reforms are more complex and ambitious, such as issuing new global reserves in ways and amounts that could be used to stabilize the world's economy or to invest in "global public goods," such as helping developing nations reduce greenhouse gas emissions.
a) The fact that nations heavily in surplus (in particular, but likely those in deficit too) don't like the idea of a system that forces them to adjust.
b) General neo-liberal dislike of things that interfere with helping the rich get richer and/or bully small countries.
Are there "downsides" to the Bancor?
To establish a system of issuance of debt free money by national governments it would be necessary to break the power the banks currently hold in these societies. Come the day! As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
I suppose that buying bonds with the freshly created money is unnecessary, as the greenback episode demonstrates, but it insures that the money is debt based and, without that, a good portion of the bond market for institutions such as Goldman Sachs and J.P. Morgan would not exist.
What makes Federal Reserve Notes or what would again make greenbacks legal tender is the same thing--the fiat declaration on the bills that the note "is legal tender for all debts public and private." and that it is the unit in which taxes are paid and federal expenditures are made.
I guess the conclusion of all of this is that buying the bond to make the money debt backed might be gratuitous. So it is fortunate for the bankers that the process is "repugnant to the mind." As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
