Need Of A New Global Currency

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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 gaining in strength and is not being devalued? 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 not a fiction but a reality now, which everyone including Americans has accepted it in the present form. Every crisis has to be faced and solutions thereof have to be explored. The great depression of 1930s and subsequent the 2nd World War had plummeted the world economy into bottomless nadir. In order to explore the ways and means to tackle it, the Bretto-Wood conference was held.(‘Bretton Wood system, 1944’ of monetary management came into being after a meeting attended by 730 delegates from 44 allied Nations who gathered in Mount Washington Hotel in Bretton wood, New Hampshire on 22nd July, 1944. The agreement reached therein led to establishment of two important financial institutions viz IMF and IBRD. This ‘duo’ played very important roles with respect to economic and financial order of the world thereafter. Although, this system sought to establish a just and equitable global financial order, it was hijacked by US and some European countries right from the outset. The IMF and IBRD (it later became 5th Wing of World Bank) failed to serve the interests of the entire globe, especially poor and developing nations. The succession list of Managing Directors suggests that no Asian has ever been made MD of IMF. These figure suggests that how the IMF is working and how is the discrepancy.) Although it was not a grand success, it ushered in a new era of global financial order. Keynes, the famous economist on the name of which the Keynesian theory is named, has 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 announced or accepted like this. Till then US dollar is the hard global currency and according to information available 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 the ongoing financial meltdown is concerned, it is assuming alarming proportions globally. IMF has said only two days ago that the recession would prolong for much longer period in contrary to the hopes of many countries including USA. World leaders may accept it or not but in terms of its magnitude, it is not less than the great depression of 1930s. Economists and financial experts may call it with different nomenclature, some experts call it economic tsunami and other economic slow or meltdown, but the after-effects and pains emanating from it, does not seem different owing to this different nomenclature. 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 inference is drawnfrom 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 being made not only by the leaders of the developing nations but also by developed nations like UK and France to change the global financial order. LONDON SUMMIT- G-20- The summit which was held in London to discuss the affects of aftermath of world economic crisis and steps to tackle it, 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’ which was precursor of the ongoing crisis. 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. ISSUES RAISED AND DECISIONS TAKEN IN LONDON G-20 SUMMIT1. It was decided that 1.1 trillion dollar would be pledged to aid the

ailing world economy in order to revive it. This measure was bitterly opposed by countries like France and Germany. It is however unclear that when and how did this money would be pumped into the world economy? 2. The member nations agreed to triple the existing resource of IMF from 250 billion USD to 750 billion USD. 3. But the 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. In fact the governor of people’ bank of china Zhou Xioachun had raise the issue that the world now requires a new globally accepted new international currency. China wants that the USD be replaced by Special drawing rights (SDRs).It is pertinent to mention here that USD has never been officially accepted as world currency and in Bretton-Wood conference it was agreed upon that USD would be 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. USA was quick to respond and rejected this proposal out rightly. But this demand was again raised by china in the summit and found support of countries like India, Russia, and Brazil etc. USA, in a smart manoeuvre, formed an alliance with China and termed it G-2. USA with sky soaring public debt can hardly afford to antagonise Asian dragon. China with a huge FOREX of more than 2 trillion USD is a power to reckon with. It has having 1.1 trillion USD worth US treasury bills and China has repeatedly

asked the Obama administration to take guarantee of these bills, a request which is of much humiliation for Americans. It is just like a situation when a money lender comes to your house and seeks guarantee of the loan he had given to you. Under the prevailing circumstances the US government or for that matter the world financial order cannot defer this demand for infinite period of time. Many countries and many respectable economists are of the opinion that USA has been printing dollars to pay off its debts in tern causing inflationary trends across the globe. After all the worst ever crisis did originate in USA and being exported to the rest of world including the poor Africans which have yet to taste the fruits of prosperity. 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’ THE NEED TO TAKE THIS PROBLEM IN A HOLISTIC APPROCH AND THERE IS URGENT NEED TO RESHAPE THE WORLD ORDER ITSELF

SUGGESTED CHANGES IN PROPOSED NEW GLOBAL FINACIAL ORDER (PNGFO)-Now the wheel has turned and no one can prevent change of guard. Following changes can be made so that the PNGFO fulfils aspirations of billions of under-nourished and starved people across the world1. 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

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‘greater say’ in fund distribution and other administrative matters. In nut shell steps to evolve mechanism of, what Dr. Man Mohan Singh says ‘substantial increase in multilateral institutional funding of economies’ should be taken. 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.’ United Bank of Switzerland (UBS) or Swiss Bank has been depository of hundreds of trillions dollars from across the world. Corrupt politicians and big business men have used ‘Banking Act, 1934 of Switzerland’ in their favour, because this law enables this Bank to maintain secrecy with respect to money deposited into it. 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. According to data of Swiss Banking Association 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. 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 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 PNGFO addresses all such issues, such groups and blocs would render useless and prosperity would transcend to all sections and all territories across the globe. If we see the graph (GDP of India, China, America etc), 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’ 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. 9. 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. 10.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.