In a new article appearing on Project Syndicate former Greek Finance Minister Yanis Varoufakis proposes both a new International Clearing Union (ICU) and a new concept for global reserve currency to go with it (he calls it a Kosmos). Below are a few quotes from his article.
-------------------------------------------------------------------------------------------------------"The financial meltdown of 2008 prompted calls for a global financial system that curtails trade imbalances, moderates speculative capital flows, and prevents systemic contagion. That, of course, was the goal of the original Bretton Woods system. But such a system today would be both untenable and undesirable. So, what might an alternative look like?
The 1944 Bretton Woods conference featured a clash of two men and their visions: Harry Dexter White, President Franklin Roosevelt’s representative, and John Maynard Keynes, representing a fading British Empire. Unsurprisingly, White’s scheme, founded on the United States’ post-war trade surplus, which it deployed to dollarize Europe and Japan in exchange for their acquiescence to full monetary-policy discretion for the US, prevailed. And the new post-war system provided the foundation for capitalism’s finest hour – until America lost its surplus and White’s arrangement collapsed.
The question asked periodically during much of the last decade is straightforward: Would Keynes’s discarded plan be more appropriate for our post-2008 multipolar world?
Zhou Xiaochuan, the governor of China’s central bank, suggested so in early 2009, lamenting that Bretton Woods had not embraced Keynes’s proposal. Two years later, Dominique Strauss Kahn, then-Managing Director of the International Monetary Fund, was asked what he thought the IMF’s post-2008 role ought to be. He replied: “Keynes, 60 years ago, already foresaw what was needed; but it was too early. Now is the time to do it. And I think we are ready to do it!”
Within weeks, however, Strauss Kahn fell from grace, without ever explaining what he meant by “it.” But it is not too hard to sketch out what “it” might be."
(see Dr. Warren Coats thoughts on it below)
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My added comments: Every time we see another serious proposal for a new global currency of one kind or another, it adds weight to the idea that this concept is an ongoing topic of discussion around the world. Please notice that virtually every article on this talks about support from China for some kind of new global reserve currency in the future (usually the SDR itself is referenced). In this case we have a proposal from Mr. Varoufakis for a new digital global reserve currency administered by the IMF using a "transparent digital distributed ledger", but clearly not the SDR itself. He calls it the "Kosmos" just to give it a name. This is more along the lines of the original Bancor proposed by Keynes or the "Phoenix" mentioned in an Economist article way back in 1988 (see our 2014 article here). Interestingly, the Economist article suggested such a currency might come into existence by 2018. Here is the last sentence of that 1988 Economist article:
"Pencil in the phoenix for around 2018, and welcome it when it comes."
Added note: Former head of the SDR Division at IMF (Dr. Warren Coats) had this comment about the proposal from Mr. Varoufakis for readers here:
"The asymmetric adjustment pressures (BOP deficit countries must adjust while surplus ones don’t have to) have remained a problem since the establishment of the gold exchange standard under the IMF. Dissatisfaction with the existing system of international payments is growing. Yanis Varoufakis has proposed a modern version of Keynes’ International Clearing Union to replace the US dollar as the international reserve asset and restore the symmetric adjustment pressures of the gold standard. These are desirable objectives, but Varoufakis’ scheme (regulation of the supply of his new currency by a computer administered rule with taxes on both BOP surpluses and deficits) is more complicated than is necessary to achieve these objectives. Moreover, with floating rates visa vise the Kosmos and no intervention rules, his system is under specified. My Real SDR Currency Board scheme is both simpler and more market sensitive." -------------- Dr. Warren Coats
Additional added note: A thank you to Willem Middelkoop for a mention of this article on his twitter feed.
The asymmetric adjustment pressures (BOP deficit countries must adjust while surplus ones don’t have to) have remained a problem since the establishment of the gold exchange standard under the IMF. Dissatisfaction with the existing system of international payments is growing. Yanis Varoufakis has proposed a modern version of Keynes’ International Clearing Union to replace the US dollar as the international reserve asset and restore the symmetric adjustment pressures of the gold standard. These are desirable objectives, but Varoufakis’ scheme (regulation of the supply of his new currency by a computer administered rule with taxes on both BOP surpluses and deficits) is more complicated than is necessary to achieve these objectives. My Real SDR Currency Board scheme is both simpler and more market sensitive.
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