Friday, September 8, 2017

Paola Subacchi - Saving the International Order

This article by Paola Subacchi appearing on Project Syndicate makes some of the same points we have made here for some time in regards to the prospects for global consensus on changes to the existing monetary system. While I constantly see articles that seem to suggest that some kind of new global monetary system will be imposed by the IMF, the reality that I find over and over again is that the consensus that would be needed for that kind of change simply does not appear to exist at this time. Below are a few excerpts from the article.


"This autumn, the International Monetary Fund and the World Bank will once again hold their annual conference in Washington, DC. At a time when the liberal world order that these institutions underpin is under threat, they cannot afford to stick with business as usual. Instead, they must consider deep reforms – and that will require abandoning the paternalistic, even hostile, tone that has often dominated discussion of the topic."

Since the election of Donald Trump as US president last November – the culmination of an upsurge in nationalist-populist sentiment across the Western world – the weaknesses of existing multilateral frameworks have come increasingly to the fore. But the current crisis of the liberal world order has been a long time in the making.

In fact, it has been apparent since before the turn of the century that the post-World War II governance structures were untenable, because the assumptions that formed their foundation were beginning to crumble. In particular, with emerging economies, especially China, on the rise, the division between the West and the “rest” was narrowing fast.

Yet the global economy’s institutional underpinnings – the IMF and the World Bank – have remained largely unchanged. Indeed, the multilateral institutions on which global governance rests do not look all that different today than they did in 1944, when Britain’s John Maynard Keynes and America’s Harry Dexter White convened representatives from 44 countries in in Bretton Woods, New Hampshire, to design the post-WWII international order."

. . . .

"To be sure, since the 2008 financial crisis, there has been much debate about globalization, governance, international cooperation, and the tension between open markets and domestic politics. Well-rehearsed discussions of issues like financial surveillance, coordination, moral hazard, international lenders of last resort, a debt-resolution regime, and sustainability in development finance will surely inform the work of the eminent persons group.

But discussion does not imply consensus, and I am not convinced that agreement on any of these topics is strong enough to produce concrete policy action. The question of how to pursue governance and quota reform in the Bretton Woods institutions – critical to these bodies’ survival – is nowhere near answered. And Trump’s US, which is engaged in its own rethinking of its role in world affairs, remains a wild card."

My added comments: I put the last paragraph above in bold italics because it basically says almost exactly what we have been saying here for some time. When I see articles saying that the IMF will do this or will do that I have to ask this question:

How will the IMF do anything significant to change the existing monetary system without the global consensus of the major powers that are its members (not to mention all the other nations that are members).?

No such consensus appears anywhere on the near horizon at this time as best I can tell. Readers here are probably tired of hearing this, but this is why I am convinced that the world will have to see a major global financial crisis of the kind Jim Rickards and others are predicting before we are likely to see any kind of movement towards consensus on these huge issues. All of the individual governments and central banks at the IMF have to work on behalf of the interests of their own nations first and foremost. Those interests simply do not line up too many times to get much consensus on the big issues. 

Things can always change and if they do we would certainly report that here. But it is important to report things accurately based on the information that is available. At this time, the best information I know of suggests no such major monetary system change is on the near term horizon at either the IMF or the BIS. 

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