Dr Armin Haas, "After the dollar?"

IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 1

Dr. Armin Haas,

with the collaboration of Prof. Carlo Jaeger and Prof. Klaus Töpfer

Institute for Advanced Sustainability Studies e.V. (IASS Potsdam)

Sustainability, Finance, and a Proposal from China

Towards a Sustainable Financial SystemStockholm, September 12-13, 2013


A Sustainable Currency Order?

Countries issuing reserve currencies can find it difficult to maintain the value of their currency while providing liquidity to the world.

Examples of the US-Dollar history:

• Fighting US inflation in the 1980s contributed to the Latin American debt crisis.

• Avoiding US deflation after the dotcom bubble and 9/11 contributed to the 2007 global financial crisis.


A Shifting Global Landscape

• The rise of the BRIC states will change weights in the international economic and political landscape.


Currency Reserves

0

50

100

150

200

250

1998


Currency Reserves

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1998

2011


A Shifting Global Landscape

• Many take the development towards a multipolar system of nationally issued reserve currencies for granted.

• A system based on more than one national reserve currency may show disruptive economic and political dynamics.


Celestial Mechanics


The 3-Body-Problem

Source: Daniel Piker, http://vimeo.com/11993047

http://vimeo.com/11993047


The Reality of Postponing Risks

The present global monetary system is not sustainable:

• It suffers from a key problem of our civilization: the tendency to postpone risks so that they are neglected in today’s decisions.

• Attempts to simply stabilize the current monetary system may lay the grounds for even bigger crises in the future.


Keynes’ Vision

In the 1940s, Keynes envisioned a global monetary system, which came with schemes for

• Delivering sufficient liquidity for enabling economic growth of all nation states;

• Keeping destabilizing macro-economic imbalances in check.


Keynes’ Vision

Keynes conceived the Bancor, an international reserve currency:

• Basically, the Bancor was a fiat currency.

• In Keynes’ vision, it was used for stabilizing commodity prices via commodity buffer stocks.

• By stabilizing commodity prices, Keynes aimed at macroeconomic stabilization.


Bretton Woods and Beyond

• The Bretton Woods conference established the US-Dollar as world reserve currency, and the IMF and the World Bank as global financial institutions.

• In the late 1960s, Special Drawing Rights were created as an alternative source of international liquidity.

• Special Drawing Rights are options that enable countries, if need arises, quick and easy access to currency loans under favorable conditions.


A Chinese Proposal

• Zhou Xiaochuan, the governor of the Chinese central bank, made a remarkable proposal:

• In the long term, he aims at an international reserve currency with a stable valuation benchmark.

• “The creation of an international currency unit (…) is a bold initiative that requires extraordinary political vision and courage.”


Touching Stones to Cross the River

• In the short term, he proposes to strengthen the role of Special Drawing Rights as stepping-stones towards the long-term goal.

• Developing IMF’s Special Drawing Rights towards an international reserve currency “should be a gradual process that yields win-win results for all.”


Are we at a River Passage?

• Is it a promising idea to start where we are and develop SDRs towards an international reserve currency?


Possible Stones in the River?

• A world government with the power to tax.

• Value backing.

• Paying interest rates.

• Reputation of issuing agency.


The Palace and the Temple

• Historically, money was controlled by “the warriors” or “the priests”.

• In our times, this translates into the question of independence of central banks.

• IMF is controlled by governments.

• Would the BIS be a more promising candidate for controlling an international reserve currency than the IMF?


Institute for Advanced Sustainability Studies e.V.Berliner Straße 130D – 14467 Potsdam

Web: www.iass-potsdam.de

Thank You for Your Attention

http://www.iass-potsdam.de/



Dr Armin Haas, "After the dollar?"

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