An IMF Alternative?

August 7, 2003 10:11 AM

How to Reform the Global Financial System by Joseph Stiglitz. Stiglitz--a noted economist and author--takes a look at the recetn history of economic and currency crises, and suggests a novel (but not new) approach: reviving the SDR (special drawing rights) concept originally envisioned by John Maynard Keynes. [more inside]
posted by Ignatius J. Reilly (6 comments total)

There is, however, an alternative. Keynes, during the founding of the IMF, envisaged the issuance of "global greenbacks", more familiarly known as special drawing rights (SDR). The international community has already recognized that it can provide liquidity to a country in the form of SDRs, which effectively give a country purchasing power. They are, in a sense, a form of international money, exchangeable for hard currencies that can be used to purchase goods and services.

A lengthy, but though-provoking read (and reaosnably easy to understand for those of us who are not economists).
posted by Ignatius J. Reilly at 10:12 AM on August 7, 2003

I've often wondered if U.S. Borrowing is the kind of thing that only panic-prone non-economists worry about. Apparently nobel winners think it's cause for concern too?
posted by namespan at 12:38 PM on August 7, 2003

There's a proposal which has been made to deal with the negative effects of the global currency trade - the "Tobin Tax" , which would be a small tax on the movement of currency across borders: not enough to discourage trade but enough to deter the worst forms of currency speculation. Money thus raised would be used to address pressing world problems of poverty, hungry, environmental degradation, and so on. But this one probably deserves it's own post.
posted by troutfishing at 1:16 PM on August 7, 2003

There is overwhelming evidence that such capital market liberalization exposes developing countries to high levels of risk beyond their economic capacity without enhancing their economic growth.

Have a drink sometime with some poor bastard from Argentina who's come to São Paulo, Brazil because Brazil suddenly looks like the golden land of opportunity in comparison: a currency under pressure, but at least a currency, instead of bartering with eggs and Paraguayan cigarettes. And having worked at a Big 5 investment during the Latin American telecom privatizations of the 1990s makes this point, from a recent interview with Stiglitz, ring true:

... globalization of the capital market serves the interests of speculators and people who are interested in pushing short-term securities. Some of the unbalanced trade rules, such as the intellectual property regime, are pushed by drug companies and the entertainment industry over the interests of the broader scientific community, over those who are concerned by the health and care of the very poor.

The mass privatizations apparently planned for Iraq will undoubtedly turn out to be another case in point.

Heady stuff for CoolFlashSiteOfTheWeek Filter!posted by hairyeyeball at 7:12 PM on August 7, 2003

I see economics as a peculiar combination of a nation successfully finding a niche in the world economy, combined with complete flexibility in its social, cultural and religious activities.
In the first case, the best such niche is mining, because of the enormous amount of secondary and tertiary industries it supports. Second best is intelligent agriculture, because of its renewability. Third is "highest value added" assembly industries, like automobile production. Fourth is "intermediary value added", like making parts from raw materials. Fifth would be service/tourism type industries.

But none of this matters and a country will be impoverished if it *insists* on remaining impoverished, by embracing bizarre and outdated social, cultural and religious practices that keep it down. All the good intentions by the rest of the world are squandered on those who refuse to embrace modernity, *but* demand largesse so they can continue in their inefficient ways.

It is a waste to give a brand new car to an Amish.
posted by kablam at 7:52 PM on August 7, 2003

more comprehensive i think than SDRs was keynes' original proposal :D

During the course of the war, Keynes was at the Treasury and set himself to think about the post-war economic order. In 1938, he had warmed up to Benjamin Graham's proposals for an international "commodity-reserve" currency to replace the Gold Standard. In 1943, Keynes forged his ideas for "Bancor", a proposal for an international clearing union. In consultation with the Americans, Keynes eventually relented on his idea and accepted the American "White Plan" for an international equalization "fund" held in the currencies of the participating nations. However, several essential aspects of Keynes's clearing union idea were incorporated.

but i think stiglitz's point about the (over)use of the USD as a global reserve currency is well taken too!

It’s human nature to compartmentalize our problems -- treating one in isolation from the other. But the real-time global economy offers no such sheltered laboratory. The confluence of uniquely powerful pressures -- deflationary risks and global imbalances -- is here today and is not about to go away in short order. It’s always tempting to put aside these concerns -- especially if the world is now getting somewhat better. But time does not work to our advantage in finding a painless and easy way out. The real problem is that a dysfunctional world lacks a holistic game plan in dealing with issues that are truly global in scope. The only way out, in my view, is for the world to get together in the form of a summit meeting and set a global agenda for the restoration of balanced growth.

i think commodity reserves and SDRs could also be supplemented by other monetary schemes like community currencies (ithaca HOURS, LETS teifis) and even corporate scrip (frequent flyer miles, disney bucks, et. al :) and their traditional problem of being "crowded out" by the positive network externalities that derive from widely circulated currencies, i.e. the barrier to entry for new currencies, could be solved by the internet :D like you already have whole virtual economies such as everquest running with functional currency units!

in other words, for a lot of the world the dollar isn't good enough, which should allow competing currences to fluorish in niche markets. like stateless, digital, anonymous cash popularized by neal stephenson, such as e-gold or the DMT rand, have been pretty successful so far in getting adopted. like although they'd probably rather not say, they're mainly used so far to avoid detection and taxation, which tends to attract less than savory customers... obtaining a more upscale clientele remains a marketing challenge as it were :D

unfortunately tho, it seems like unless you have a complete collapse in global finance and a subsequent long run global depression there is not likely to be significant changes in the usage patterns and characteristics (nationalized, fiat-based, reserve currencies administered by central banks) of the money we use and are used to now nor any time soon. during the depression there were several monetary "experiments" that fluorished (worgl, hobo nickels, etc.) and after the war intriguing possibilities such as graham's commodity reserves that may have been implemented, but alas we have what we have! undoubtedly imperfect, but by the same token imminently functional!
posted by kliuless at 8:25 PM on August 7, 2003