The International Institute of Monetary Transformation   [ click to return to main site ]   subscribe
Oct
22

Loose money, currency conflicts, capital controls and monetary governance

Post By gaia1 in Exchange rates

 

With interest rates extremely low in the US and other developed countries investors scour the globe for higher interests. They can be found in emerging and developing countries’ markets and thus large, mostly short-term capital flows enter their financial systems. These flows make these economies grow at an uncontrolled pace, unless their governments put capital controls to work in the many ways that can be done. Geithner and the IMF have indicated that they do not oppose capital controls in emerging nations as they try to defend themselves from excessive liquidity caused by the dollar and other currencies as long as they don’t touch the exchange rate and result in currency conflicts.

 

In order to resolve these currency conflicts the Gyeongju and Seoul meetings are considered to be part of a broader discussion on global policy coordination, which is called the “Framework for strong, sustainable, balanced growth” or for short the “Framework.” This Framework is supposedly to become the global monetary governance framework that will guide the monetary, financial, economic and commercial relations between nations.

 

One crucial adjective that is missing in that Framework is equitable. The present international monetary system is not equitable and therefore not sustainable, let alone stable. This fact is realized by Secretary Geithner when he recently told the Wall Street Journal: “Right now, there is no established sense of what’s fair.”

 

Because fairness and justice is not discussed, let alone determined the present international monetary system hobbles along incapacitating the emergence of strong financial, economic and commercial systems. It also leads to the absence of a global monetary institution with enforcing power which, in the words of an October 10 article, is called “Nobody at the helm”.

 

Equitable, sustainable, and, therefore, stable monetary governance means that the new global monetary governance system is based upon social and ecological/climate justice as proposed in the IIMT’s Tierra Fee & Dividend system. Its framework of equity and sustainability can stand the test of time because it addresses itself to this century’s two most important challenges: combating climate change and advancing low carbon and climate-resilient development.