A presentation held by Dr Armin Haas, Institute for Advanced Sustainability Studies, Potsdam, at the high level seminar "Towards a sustainable financial system" hosted by the Stockholm based think tank Global Challenge in cooperation with London School of Economics and The Swedish House of Finance on September 12th 2013.
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Dr Armin Haas, "After the dollar?"
1. 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 System
Stockholm, September 12-13, 2013
2. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 2
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.
3. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 3
A Shifting Global Landscape
• The rise of the BRIC states will change
weights in the international economic and
political landscape.
4. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 4
Currency Reserves
0
50
100
150
200
250
1998
5. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 5
Currency Reserves
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1998
2011
6. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 6
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.
7. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 7
Celestial Mechanics
8. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 8
The 3-Body-Problem
Source: Daniel Piker, http://vimeo.com/11993047
9. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 9
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.
10. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 10
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.
11. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 11
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.
12. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 12
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.
13. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 13
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.”
14. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 14
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.”
15. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 15
Are we at a River Passage?
• Is it a promising idea to start where we are
and develop SDRs towards an international
reserve currency?
16. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 16
Possible Stones in the River?
• A world government with the power to tax.
• Value backing.
• Paying interest rates.
• Reputation of issuing agency.
17. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 17
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?
18. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 18
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D – 14467 Potsdam
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