It time for global money?

Financial Mirror (Cyprus) - - FRONT PAGE -

and po­lit­i­cal. Above all, the le­git­i­macy of their de­ci­sions is rooted in law, which it­self is the ex­pres­sion of demo­cratic will. Bail out one bank and not an­other? Pur­chase sov­er­eign debt but not state or com­mon­wealth (for ex­am­ple, Puerto Ri­can) debt? Though de­cid­ing such ques­tions at a supra­na­tional level is not the­o­ret­i­cally im­pos­si­ble, it is ut­terly im­prac­ti­cal in the mod­ern era. Le­git­i­macy, not tech­nol­ogy, is the cur­rency of cen­tral banks.

But the fact that a sin­gle global cen­tral bank and cur­rency would fail spec­tac­u­larly (re­gard­less of how strong the eco­nomic case for it may be) does not ab­solve pol­i­cy­mak­ers of their re­spon­si­bil­ity to ad­dress the chal­lenges posed by a frag­mented global mon­e­tary sys­tem. And that means bol­ster­ing global mul­ti­lat­eral in­sti­tu­tions.

The In­ter­na­tional Mon­e­tary Fund’s role as in­de­pen­dent ar­biter of sound macroe­co­nomic pol­icy and guardian against com­pet­i­tive cur­rency devaluation ought to be strength­ened. Fi­nance min­is­ters and cen­tral bankers in large economies should un­der­score, in a com­mon pro­to­col, their com­mit­ment to mar­ket-de­ter­mined ex­change rates. And, as Raghu­ram Ra­jan, the gov­er­nor of the Re­serve Bank of In­dia, re­cently sug­gested, the IMF should back­stop emerg­ing economies that might face liq­uid­ity crises as a re­sult of the nor­mal­i­sa­tion of US mon­e­tary pol­icy.

Like­wise, a more glob­alised world re­quires a com­mit­ment from all ac­tors to im­prove in­fra­struc­ture, in or­der to en­sure the ef­fi­cient flow of re­sources through­out the world econ­omy. To this end, the World Bank’s cap­i­tal base in its In­ter­na­tional Bank for Re­con­struc­tion and De­vel­op­ment should be in­creased along the lines of the re­quested $253 bln, to help fund emerg­ing economies’ in­vest­ments in high­ways, air­ports, and much else.

Mul­ti­lat­eral sup­port for in­fra­struc­ture in­vest­ment is not the only way global trade can be re­vived un­der the cur­rent mon­e­tary ar­range­ments. As was am­ply demon­strated in the last seven decades, re­duc­ing tar­iffs and non-tar­iff bar­ri­ers would also help – above all in agri­cul­ture and ser­vices, as en­vis­aged by the Doha Round.

Global fi­nan­cial sta­bil­ity, too, can be strength­ened within the ex­ist­ing frame­work. All that is re­quired is har­monised, trans­par­ent, and easy-to-understand reg­u­la­tion and su­per­vi­sion.

For to­day’s in­ter­na­tional mon­e­tary sys­tem, the per­fect – an unattain­able sin­gle cen­tral bank and cur­rency – should not be made the enemy of the good. Work­ing within our ex­ist­ing means, it is surely pos­si­ble to im­prove our pol­icy tools and boost global growth and pros­per­ity.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.