Publications / Essay

New World Bank and Currency Proposal

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.

Publication By

Robert Swann

Robert (Bob) Swann was the founder of the E. F. Schumacher Society, now the Schumacher Center for a New Economics. In 1974 E. F. Schumacher asked Robert Swann to start a sister organization to his own Intermediate Technology Development Group, but it was not until 1980, when prompted by Resurgence editor Satish Kumar, that Swann organized the E. F. … Continued

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