Do We Need New Global Financial Order?

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EED TO HAVE A NEW GLOBAL FINANCIAL CURRENCY AND NEW GLOBAL FINACIAL ORDER OM PRAKASH YADAV

Is it not very astonishing that when the whole of world is plunging into recession, American currency Dollar is not being devalued accordingly? Who determines the rate and value of dollars? Why is this discrepancy? Is the dollar’s value is the real picture? These are some questions which desperately need answer and this essay is an attempt to do this only. The World economic crisis is a pandemic now. Every crisis has to be faced and solutions thereof have to be explored therefore when great depression took place in 1930s and the world economy plummeted into bottomless nadir, the Bretto-Wood conference was held which led to emergence of new global financial order. Although it was not a grand success, it ushered in a new era. Keynes, the famous economist, suggested creation of a global reserve currency called ‘bancor’ whose value was to be determined by a basket of about 30 commodities including gold. The aim was to protect the global currency against any vulnerability to vicissitudes of any single currency. This arrangement went on smoothly till 1971, but after US-Vietnam war, when Americans were under tremendous financial chaos, the system was overturned and after that gradually US dollars assumed the role of global currency, though it was officially never accepted. Till then US dollar is the hard global currency and as many 2/3rd of the official foreign exchange reserves of national governments are in dollars. It is in this perspective that the valuation of dollars can be perceived. So far as ongoing financial meltdown is concerned, IMF says only that recession would prolong for much longer period in contrary to the hopes of many countries including USA. Even when some signs of recovery is emerging hither and thither, it has miles to go. One may accept it or not, the crisis is not less than the Great Depression of 1930s. It would however be financially naive to prescribe remedies for what had happened, because, it is easy to write ‘prescription in retrospection’. But certainly, this does not mean that no lesson is learnt from this ‘economic catastrophe’.

It would be however be wastage of time to further analyse the causes and circumstances which led to this fiasco, but it would be great injustice to the economic history also, if some glaring aberrations and maladies of this financial order are not enunciated and diagnosed. ‘Crisis is the engine of change’; therefore, this crisis would also bring about changes in the global financial order, an order which came into existence after ‘Bretton-wood conference, It is therefore; when the global economy is facing the threat of recession and global financial order has failed, the demands are certainly to be made to change the global financial order. LONDON SUMMIT- G-20(A MISSED OPPORTUNITY)- The summit held in London to discuss the affects of aftermath of world economic crisis and steps to tackle it failed to evolve a consensus. Many people called it as the 2nd Bretton-Wood conference and expectations were soaring in hype. There was euphoria all around but it also burst like the ‘housing bubble’. The world leaders specially the members of G-7 like Britain, Germany, France and America were vertically divided. Germany and France were of the opinion that the screws of financial institutions should be further tightened because what they thought, and to some extent they are correct also, that the ‘excessive financial leverage’ and ‘bottomless greet’ of these institutions are the root cause this crisis. USA and UK on the other hand, were averse to it and pleaded that tightening of screws would mean reversal of process of free market economy which is the basic of the capitalist economy. Anyway, the latter prevailed and under their pressure nothing tangible could emerge out of this much published and hyped summit. Well it was not a failure too. Most important issue which was raised in this summit was the issue of‘NEW INTERNATIONAL CURRENCY’ china had raised this issue well before the summit could begin in April, 2009. The governor of people’ bank of china, Zhou Xioachun had raised it vociferously. China wants that the USD be replaced by Special drawing rights (SDRs). This demand of china caused a stir in the world politico-economy because it is nothing short of determined challenge to the established financial hegemony of Americans over the world. Although USA has rejected this proposal out rightly, this demand may be raised again in the forthcoming Pittsburgh Summit in September, 2009 and may be supported by countries like India, Russia, and Brazil and host of others.

Many countries believe that USA has been printing dollars to pay off its debts in turn causing inflationary trends across the globe. This unfettered financial regime must go and be replaced by a universally accepted and more transparent convertible global currency so that the monopolistic and hegemonic US dollar era come to an end. This would be perhaps the best achievement we could have in this ‘financial tsunami’. SUGGESTED CHANGES IN GLOBAL FINACIAL ORDER (GFO)Now the wheel has turned and no one can prevent change of guard. Pittsburgh summit of G-20 may take into considerations following changes in the global financial order so that aspirations of billions of under-nourished and starved people across the world is fulfilled1. IMF and World Bank’s functioning should be overhauled to make them more democratic. Voting rights of member countries should be changed and ‘bossism’ of west should go. ‘Each Nation equal vote’ theory should be enshrined into. 2. Appointments in IMF especially on the post of Managing Director (MD) should be made in a more transparent manner so that poor nations should also get a ‘comfortable say’. The system of nomination to President of World Bank by US President should be done away with. 3. World Bank and its different organisations should also undergo radical changes. The basis of percentage of voting in World Bank should be changed so that developing nations should have a ‘greater say’ in fund distribution and other administrative matters. Some short of ‘global financial regulatory body’ may be set up to ensure proper monitoring of global monetary health and to ‘inject curative drugs’ when necessary. The fate of global market can no longer be left in the hands of elements of ‘excessive financial leverage enjoyed by greedy speculators and fund managers.’ 4. United Bank of Switzerland (UBS) or Swiss Bank has been depository of hundreds of trillions dollars from across the world. Tax evaders have used ‘Banking Act, 1934 of Switzerland’ in their favour. Tons of gold deposited during ‘Nazi’s Nuremberg trial’ can play vital role in tiding over this crisis. Time has come to amend or repeal this law altogether, so that the ‘rich men from poor nations’ cannot drain the wealth and make the citizen to suffer. Un substantiated reports suggests that about 1456 billion dollar of Indians has been deposited in UBS; followed by Russia 470 billion USD, UK 390 b USD, Ukraine 100 billion USD, China 96 b USD.

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Radical changes are required in WTO also. Protectionism and favouritism should be done away with. The present food crisis is likely to be metamorphosed into ‘global food crisis’ if not addressed to immediately. The ‘bio fuel’ and US role on this issue is going to create an unprecedented situation in the world very soon. It is allowed to ‘go unabated’ will be more devastating that this economic crisis also. The humanity has to decide that whether ‘vehicles would be allowed to move at the cost of poor man’s stomach’. The unequal distribution of wealth and prosperity has resulted into creation of a number of economic blocks in the world. SAFTA, NAFTA, IBRA, ASEAN, SAARC, OPEC, OIC, EU,BRIC etc are manifestations of growing tendencies of group-ism and bloc-ism, which ultimately are proving hindrance to free flow of trade and commerce, harming the world at last. If GFO addresses all such issues, such groups and blocs would render useless and prosperity would transcend to all sections and all territories across the globe. Comparing GDPs of India, China, America, we find that the 16th, 17th and even 18th centuries were the time of India and China, the Asian giants. Hopefully, history would repeat itself and ‘this duo’ (India and China) would occupy the driving seat of the future ‘International financial institutions’. Permanent membership in Security Council to countries like India, Brazil, Japan and Germany should be given so that this world forum may not arbitrarily be used in one country’s favour and against other. The West’s honeymoon with ‘west type liberal and free economy and American type democracy’ seems to be on the verge of divorce, therefore; world is set to emerge with new set of ‘politico-strategiceconomic ideologies’ based on weltgeist, which is more equitable and less discriminatory. Market is a good servant but bad master, therefore; regulation and restriction on servant is essential. Prioritisation of development has to be rescheduled, after all in spite of all sorts of sky soaring achievements, Bread, Cloth and Shelter’ would remain on the top of the list. No civil society can afford to ignore the equitable distribution of ‘these basics’ otherwise, the social fabric will tatter like what is happening today.