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May
16

The G2 Monetary Working Group

Post By gaia1 in Tierra Currency

Inspired by David Leonhardt’s article in today’s The Money Issue in the NY Times Magazine entitled “THE CHINA PUZZLE We need China to buy our government bonds to keep our interest rates down. But that’s just the beginning of the problem” I decided to launch the G2 Monetary Working Group. It would consist of 12 Chinese and 12 American representatives of government, business and civil society and one European, an Irish economist specializing in economic strategies and an emission-based currency unit.

 

In the TIMU book’s chapter on the US and the TIMU Architecture I discuss this working group in detail and its chances of contributing to a G2 partnership that Fred Bergsten of the Peterson Institute of International Economics recently wrote about in The Financial Times. The reason that I started this working group is to contribute to evolving this most important dysfunctional relationship to one that is beneficial to both and the rest of the world. If China were abruptly to change its dollars into SDRs—it already is contributing its bonds to the IMF in the SDR denomination—it would lead to monetary havoc in the US, China and the rest of the world. If smart negotiations were held to gradually transition from a dollar and other reserve currencies to SDRs or Tierras, it would benefit all. China and the UN GA President's Commission on Monetary and Financial Crises are already proposing a new national reserve currency and the present situation is untenable, let alone sustainable.

 

So the US and China have to cooperate to smartly untangle their relationship of too much consuming by US citizens (70% of GDP) and too much savings by Chinese citizens who do not have good health care, by corporations who profit by subsidies, low currency and by the government who builds a sovereign wealth fund. They also have to cooperate in terms of the climate crisis. China is facing a major carbon problem, particularly on account of its coal-burning power plants. Paul Krugman in his May 15 column in the NY Times makes it very clear that the international community may have to take steps, even impose a carbon tax on its exports, if China does not change. Protestations from the Chinese side that that such tax would violate WTO regulations will not hold water.

            It would be in the interest of both nations to negotiate a pact that would solve each other’s problems and, in one swoop, bring stability to the international monetary, financial, economic systems and reduce carbon emissions. This win-win situation would even be made stronger if the Tierra and its TIMU Architecture were to be adopted rather than the SDR as the sole international reserve currency!