the international monetary system history aaa

Abstract

Although the financial and economic crisis did not directly hit the international monetary system, it has lead to the rethinking of the overall architecture that underpins the world economy. Can the current system of floating currency blocs with dollar-based trade and reserves withstand the strains of the global adjustment ahead? It is time to consider alternatives. This article argues that the existing system needs to evolve into a multicurrency one in which a number of international currencies, ideally representing the main trading areas, have the function of storing value and providing the unit of measure. A multicurrency system would respond more flexibly to the demand for liquidity and would provide a way to diversify the accumulation of reserve assets. It is also more appropriate for the increasingly multipolar world economy. The article discusses how in today's larger and more integrated world economy the dependence on the dollar as the basis of both trade flows and financial reserves has become excessive, creating some fundamental imbalances. However, while the rationale for change is clear, the current system is locked in a form of stable disequilibrium where the status quo carries the lowest risk for most players in the short-term. Any abrupt move away from the dollar could trigger trade flow disruption and exchange value losses. Policy cooperation should keep the imbalances under control and manage the transition to a more stable system. The system will evolve, albeit gradually. Looking at the steps taken by some countries, notably China, there is the gathering impression that this decade is one of transition, rather than a 'Bretton Woods moment'. Any reshaping will have to bring in the views of the 'rising powers', China in particular, and their concerns about the limitations of the existing system and the increasingly asymmetric burden of adjustment that it imposes.

International Affairs (Royal Institute of International Affairs 1944-) © 2010 Royal Institute of International Affairs

https://www.princeton.edu/~ies/IES_Studies/S12.pdf

The Evolution of the International Monetary System: Historical Reappraisal and Future Perspectives Robert Triffin 

The cancer of bankers

Rudo de Ruijter
Independent researcher
Netherlands
In The magic of bankers you have been able to read how bankers create balances for loans with a simple line of bookkeeping. There is no money involved. The money for the balances doesn't even exist. This extremely lucrative trick incites the bankers to supply as many loans as possible, but there is more. There are specific growth impulses which makes it impossible to stop the growth of the outstanding loans. Not even with regulations. This has tremendous consequences for our society.

• The creation of the real money

Banks need only a little bit of money to pay the differences between incoming and outgoing payments among them. [1] They also need some money for customers who ask for bank notes, for instance at ATM's. Banks obtain this money by selling securities (like state obligations / treasury bills) to the central bank, where each bank has an account.

The latter then adds the value into the account of the bank. This way, the official money comes about as numbers at the central bank. The central bank is the only bank entitled to print banknotes. Also, the banks can withdraw money from their central bank account in the form of bank notes, to keep them ready for customers who ask for them.

• Repro-contract

The sale of securities to the central bank is not an ordinary sale. There is a condition attached to it: The banker must promise to buy back these securities at an agreed date at an agreed higher price. Thus, the banks dispose of the money just temporarily and they have to sell and buy back securities regularly.
The first growth impulse
The fact that each time the central bank demands more money back than it has initially created, means that the banks never have enough money to buy back the securities. They have to sell more securities to buy back the preceding ones.
This causes increasing costs to the banks. To compensate these costs they will have to generate more income, thus supply more loans all the time.

Note, when customers keep bank notes at home, the bank which supplied them will bear the cost for them permanently. For the banks this is one of the reasons to reward customers when they deposit their money in a savings account.

• Inflation: increasing prices

When supplying loans, the banks create new balances out of their hat, but they don't have a magic stick to create more goods to buy. And when consumers have more 'money' to spend for the same amount of goods, prices will simply go up. Each unit of money becomes less worth and with that also our bank balances.

• Inflation: increasing working pressure

And if we don't want to get poorer, we will have to work harder to make up for the loss of value of our money. It is a permanent race against impoverishment.

You can also see it this way: By working harder we try to obtain a part of the newly created bank balances.

• The fairy-tale of economic growth

The tale that an economy should grow to be healthy comes out of the need of the bankers to supply more loans all the time. More loans means more balances in circulation and loss of value of our money. To prevent impoverishment we have to produce more in order to earn more all the time. That is nice for the bankers, but not for us and not for the Earth.