New World Bank and Currency Proposal
by Robert Swann, 1997, Cambridge, Massachusetts
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One of the anomalies of the "dismal science" of economics
is that it accepts the fiction of the nation state and tries
to deal with the "economic system" in the context of nationalism.
It becomes obvious how absurd this is if we ask ourselves
what a "national physics" or a "national biology " would
be? The pretensions of economists to regard economics as
a "science" is destroyed by the absurdity of a "national
economics." Both socialists and capitalists tend to fall
into this trap, but perhaps socialists even more often than
capitalists. Nothing, as Solzhenitsyn has pointed out in
the case of Russia and China, is more virulent and dangerous
than Marxist nationalists who threaten to go to war with
each other to protect the purity of their ideology.
Perhaps the best illustration of not only the absurdity
but the insidiousness of "national economics" is the present
money system. Under the present system, whether capitalist
or socialist, each country has its own currency (dollar,
pound, franc, ruble, yen, etc.), which it protects tenaciously
and, in fact, uses as a means to accomplish its purposes
short of war, or to wage war. Money is a weapon of the state
used both to keep its own citizens under control and to
maintain its control over other parts of the world. The
ability of the state to create money through its bond-issuing
power (not to be confused with savings bonds that citizens
buy), without resorting to taxes, is both the primary cause
of the present high inflation and the reason why President
Johnson did not need the support of the American people
to wage war in Vietnam.
When Johnson decided to step up the Vietnam War in 1965,
he did not go to the American people and ask for more taxes.
That would have been unpopular. He simply printed money
through bond issue. While this is called counterfeiting
when private citizens do it, economists consider it perfectly
acceptable when the government does it. Because the citizens
of each state pay for it in the form of inflation, it could
also be called a hidden tax-or taxation without representation.
In his recent book about money, J. K. Galbraith demonstrates
how almost every war in history, including the American
and French Revolutions, were paid for with printed, worthless
money. (Galbraith neglects to include the Vietnam War. He
stops with the Civil War, so I infer that for historians
it is safe to get only within one hundred years of the present
time.)
To take the power of creating money away from the nation
state might, therefore, be the most effective way of stopping
its power to wage war. Obviously it will be impossible to
do this through legislation, since politicians are not going
to give up their most potent source of power. However, a
potential for doing it indirectly presents itself in the
modern world by first creating a world currency, or non-national
currency. Because of its stability, this new currency, which
is neither inflationary nor deflationary, would eventually
push national currencies out of the way.
How? I submit that because of certain objective factors
that exist today, it might come about through the creation
of a new World Bank organized by Third World countries and
led by OPEC countries, particularly the Arab countries that
have most to gain from such a development. Clearly, Third
World countries are in great trouble. They are falling behind
the developed countries at an increasingly desperate rate,
struggling to establish a new economic order, they have
gained certain advantages, including their numerical superiority
in the UN, and their possession of raw resources (oil, bauxite,
copper etc.), which are absolutely necessary to the industrial
countries. And although strategies such as cartels are useful
in the short run, they are not necessarily feasible in the
long run. Therefore the majority of the countries, or those
with the majority of the world's population, have strong
motives to look elsewhere for possible solutions.
One road open to them is to establish a new World Bank,
which by definition would have to use new currency. What
kind? Not one of their present currencies; How could they
decide which one? Besides, all their present currencies
are devaluing at a rapid rate-hardly a good way to start
a World Bank. Could they use gold? Not likely; they don't
have much. This is one of the obvious reasons for their
present poverty.
However, they all possess raw materials (oil, bauxite, etc.)
that could be used as the reserve system for a new currency.
An index of worldwide commodities would be used to establish
a monetary unit that would be both a world currency and
have a stable value. In fact, the present IMF uses a monetary
unit that is also based on an index, and is, in fact, one
kind of world currency. However, this unit, which is called
SDR (Special Drawing Rights) and sometimes "paper gold"
is really an index of national currencies-the sixteen currencies
of the developed countries, of course! Therefore, it's hardly
a currency for the developing countries, and certainly not
a true world currency.
In any case, there is one significant fact about the SDR:
It is used as an international currency, and since it does
not devalue as much as some of the national currencies,
the OPEC countries have threatened to demand all payments
for oil in SDRs (rather than in dollars, pounds, etc.).
This simple demand occasioned some sabre rattling on the
part of the U.S. but did not result in any real confrontation.
The OPEC countries backed off the demand to the U.S. largely
because the dollar hardened-not because of the threat, although
England now pays for oil in SDRs. In the future, however,
it is likely that OPEC countries will insist on some kind
of commodity index; the Shah of Iran, for example, wants
an index of manufactured articles.
If the Third World countries, meanwhile, come to see how
a raw commodity index will benefit them, they may help push
OPEC in this direction. Once OPEC insists on oil payments
in such an index, then the stage would be set for a new
World Bank that was of, by, and for Third World Countries,
and would use the commodity reserve system as the basis
for a new world currency. By doing so, the Third World politicians
would directly or implicitly begin to lose their power to
create money for their own selfish political interests.
The politicians, in all likelihood, will have no other choice-particularly,
as is likely, if the present international monetary system
collapses.
Furthermore, the people of the Third World would be gaining
tremendous advantages from the establishment of a new currency.
For example, since each country could use its commodity
reserves, including agricultural commodities, as the basis
for new money creation at the World Bank, it would be able
to expand its credit creation many times, without inflation.
Moreover, since a great deal of the mischief in Third World
countries is caused by the need to produce certain commodities
for foreign exchange (usually in dollars), countries could
now utilize their own "foreign exchange." In effect, their
commodity reserve would provide them with foreign exchange,
or world currency, without the need to distort their economy.
(For a much more in-depth analysis of this concept, please
refer to "Energy, Petrocurrency
and the World Future.")
In sum I cannot think of a single development of greater
significance to world peace, and to the survival of people
in Third World countries than the creation of a world currency
and a new World Bank, which would pave the way for the separation
of money and state in every part of the world.
For more information, please contact the
E. F. Schumacher Society:
140 Jug End Road | Great Barrington, MA 01230 USA
Phone: 01.413.528.1737
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