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Currency conundrum, economic imbalances and monetary transformation

Post By gaia1 in Exchange rates


If nations continue to intervene in their exchange rates in order to keep them low to bolster their exports and engage in trade restrictions to counter the other nations’ currency policies, the winners will be the hundreds of currency gamblers or arbitrageurs and the losers will be the millions of people whose national economies will suffer. Not cooperatively dealing with both the currency conundrum and the global financial imbalances will lead to economic disaster and may bring back the Great Depression of the 1930s.


The IMF’s 183 financial ministers and central bankers meeting in early October did not resolve anything, though some consensus seemed to grow that the IMF should have stronger powers to deal with both surplus and deficit countries. The weekend of October 22-3 brought the financial ministers and central bankers of the G20 together in SeoulBrazil did not want to send its representatives—in preparation for their “leaders” on November 11-2. The prospects are dim for both meetings. In the meantime, investors take their funds to high-yielding bonds in the emerging and developing markets, ready to withdraw them when the more lucrative investments can be made elsewhere. Currency traders play with the $40 trillion market, almost all of which is strictly for speculation. At the same time national governments are putting severe austerity budgets in place and raise taxes in these insecure economic times with great hardships for people and unheeded environmental damage.


Reuters  recently proposed four scenarios to deal with this wholly unacceptable currency and economic situation and assessed them in terms of their probability of acceptance. They were all reformist monetary proposals and have some merit. However, they do not go far enough. What is needed is to transform the international monetary system which  is the basic international system that binds the monetary, financial, economic and commercial systems together.  Given their insoluble integration, changing the basic system changes the other systems that are built upon it.


President Sarkozy wants to review the international monetary system during his presidency of the G20 during 2011-2. He thinks that the G20 is the only venue for reviewing it. I contacted the France’s UN Ambassador some two weeks ago to ask him how best to bring to his notice the TFD proposal in that review. A few days I also wrote a letter to a dozen U.S. government officials who are going to be part of the Seoul summit and suggested that the U.S. government take the bold step “that the G20 nations sponsor a UN General Assembly resolution that would establish the UN Commission of Experts on Monetary Transformation and Low Carbon, Climate-resilient Development. Thus, the resolution of the currency disputes and the development of carbon-based monetary standard would be dealt with at the proper level of international congress for further investigation.”