SOL: The WORLD ecconomy is clearly moving away from the U.S. DOLLAR
as the world's base reserve currency. This has been
the covert motive behind the ignition of numerous
conflicts in the Middle East. Any shift to a "basket of
currencies" would be a threat and a devastating blow to the U.S. economy and
therefore cause for the U.S. to use whatever means is neccessary to deter any
attempts to remove the dollar as the world's trading currency. The current
U.S. debt is escallating out of control with the Federal Reserve at the throttle
of this runaway train and the Federal Reserve itself being the only major
purchaser left for U.S. Treasuries Bonds (in the amount of $85b per
month at least until October, then perhaps drop to $45b a month). A shift
away from the U.S. dollar as the world's base currency could cause a TWENTY-FIVE
PERCENT drop in the American economy alone. This would also have a major
ecconomic impact of the world's ecconomy as well, unless done in an orderly and
balanced transition. The only way the U.S.'s "fiat" dollar could survive as the
world's base currency reserve is to give it value again by pegging it to a
NEWLY ESTABLISHED GOLD STANDARD. LETS FACE IT, IF THE U.S. HAD
NOT BECOME THE GLOBAL BULLY AND LOST THE RESPECT IT ONCE HAD AS A WORLD
LEADER WE WOULDN'T BE FACING AN ECCONOMIC WAR WHERE THE U.S. IS FORCED
INTO CRITICAL SURVIVAL MODE.
The SDR as a Successor to Bretton-Woods
The banking crisis of 2008 and 2009 has shown that an
independent currency is necessary. A long-term overhaul of the global financial
system could elevate the "Special Drawing Rights" (SDR) of the IMF to a global
currency and acting base unit for the international financial framework. The
advantage would lie in the strongly reduced dependency on a single national
economy for stability and a possibly more objective reflection of economic
(power) dynamics.
As
the collapse of Lehman brothers and the subsequent financial crisis have shown,
one obstacle towards a stable global financial system is the intricate
interconnection of national economies. Seeing how international trade generally
generates greater global wealth and higher living standards, the problem does
not lie in the interconnection itself, but in its fragility.
The
gold standard of Bretton-Woods established in 1947 was a first global attempt to
ensure greater stability in the financial sector, specifically in exchange
rates. Although the system worked well in the beginning, it had to be scrapped
once the international economic tableaux changed. Economists recognized then
that a fixed rate could not meet the demands of a dynamic world economy that was
changing and evolving at increasingly higher speeds. Therefore, the
gold-standard was replaced by the US dollar as global base unit in 1973.
Under
this status quo, it became possible for states to de- or appreciate their
currencies as needed, in order to create balance in international transactions
and exchanges. However, as a negative side effect, it has elevated the US to a
position of immense privilege, which in turn threatens the balance (and
therefore stability) of the financial system.
With
the US-dollar as base unit, the US was able to accumulate a massive amount of
foreign currencies, which has turned it simultaneously into a "lender of last
resorts" and a state "too big to fail." This position of financial power has
allowed the US to build a huge national budget deficit with very little
consequences, as well as to establish far-reaching and long-lasting dependencies
of other nations upon the US economy.
Aside
from the vast political asymmetry this creates worldwide, such a system can work
in the abstract so long as the US economy is in fact "too big to fail." However,
as the banking crisis of 2008 and 2009 has shown, it is not. When the US economy
falters and the US dollar fluctuates, the foundation of the current financial
framework goes reeling. As in the case of the Lehman bankruptcy, the effects
ripples outwards and negatively affect numerous other economies.
A
way to resolve this dilemma is to establish a different currency as base-unit
for the financial system. Any other national currency, though, would result in
similar problems. Therefore an independent currency is needed. This is where the
"Special Drawing Rights" (SDR) of the IMF come in: conceived as a mostly
objective aggregate of several currencies, it is right now only intended for use
within the IMF.
A
long-term overhaul of the global financial system could elevate the SDR to a
global currency (possibly aggregated from the US dollar, the Euro, sterling
pound and the Yuan) and acting base unit for the international financial
framework. The advantage would lie in the strongly reduced dependency on a
single national economy for stability and a possibly more objective reflection
of economic (power) dynamics, since the IMF would technically always be able to
switch the currencies chosen for the basket of currencies.
Such
a reform would drastically increase the importance of the IMF and the role it
plays in the financial system and might subsequently demand a reform of the
institution itself. The shift in political weight would likewise require
undoubtedly difficult adjustments and reforms world-wide. Yet in the end, it
would set global financial stability on multiple pillars, instead of just one,
which would mean an improvement over our current status quo.
Irene Adamski is Y8 Sherpa and member of the Y20
Finance Panel in the German delegation to the Y8 and Y20 Summit 2013 in St.
Petersburg and London, which is the official G8 and G20 youth event.
This
theme week is a joint project between the Atlantic Community and Policy
Innovation e.V. For more information regarding the Y8 and Y20 Summits as well as
on the German Delegation, please visit: www.policy-innovation.org or
contact info@policy-http://www.atlantic-community.org/-/the-sdr-as-a-successor-to-bretton-woods?redirect=http%3A%2F%2Fwww.atlantic-community.org%2Fyour-opinion%3Fp_p_id%3D101_INSTANCE_GES8xNFE98EL%26p_p_lifecycle%3D0%26p_p_state%3Dnormal%26p_p_mode%3Dview%26p_p_col_id%3Daf-column-1-3%26p_p_col_pos%3D3%26p_p_col_count%3D8
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