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Toward a robust globalisation

Manu and Chiddu are wasting time

Manu and Chiddu are wasting time

In a famous speech exactly four years ago, Fed Chairman Bernanke represented the US as responding passively and benignly to the global “savings glut” which had developed following the East Asian crisis of 1997-98.

Even though most closely associated with Chairman Bernanke, this formulation is widely shared by respectable economists and commentators, such as Martin Wolf of the Financial Times, Professor Richard Portes of the London Business School and the Centre for Economic Policy Research, and Professor Max Corden of the University of Melbourne. The task of recycling these imbalances fell on the sophisticated financial systems of the advanced countries. In the event, for a variety of reasons, even they proved unequal to the burden placed upon them.

Not surprisingly, quite a different view is taken by the major current account surplus countries, notably China, but including Germany, Japan and, for a while, the major oil-exporting countries. Here, the finger is pointed squarely at the monetary policies followed by the US Federal Reserve

The G-20 is not the perfect vehicle for India to show leadership, but it is a start. India should grasp the opportunity being given to it and run with it. (via Suman Bery: Toward a robust globalisation).

Dollar prop!

Dollar prop!

Promising start.

The post laid out the position of the world economic structures and developments in the last few years, rather well – and the way Bretton Woods unravelled. And then, in the last paragraph, Suman Bery suddenly, from nowhere comes out that India is being ‘given an opportunity’! And makes out as though India(ns) should be grateful – kow-tow and bless the benefactors. And, before they change their mind.

RUN with the bone that they have thrown at India!

Note the language …

Similar is the story with Manu and Chiddu. They use the language of recipients, of pleading and impotence. Chidambaram says that ‘they’ will now “give greater representation and voice to developing countries” Manmohan Singh mirrors the sentiment when he says,”consultations were merely for the sake of form”.

The Developing World FTA

Instead of breaking heads with the WTO, the Developing World should declare a 100 country FTA. As Rajat Nag, of the ADB points out,

“East Asia already trades 55% of its output within the region. India’s trade with China, Japan and ASEAN (Association of Southeast Asian Nations) is increasing. That is the structural shift which will have to happen. Our forecasts are not based on any dramatic shift”

Put the Doha round in deep freeze, and turbo charge work on a FTA within the developing world. That can add another 2%-4% to economic growth – especially to the poorest countries.

The Third Global Reserve Currency

To this add the Third Global Reserve Currency option – and junk the Dollar and the Euro. With this, the World economy will have two strong drivers for economic growth – without dependence on the West. The world needs to move away from the Dollar-Euro duopoly to tri-polar currency regime.

This calls for leadership – intellectual and political. Does the developing world have it? Can India provide it?

  1. galeo rhinus
    March 12, 2009 at 4:13 pm

    the *real* solution *cannot* be another fiat currency…

    …it should be the abolition of the fiat concept… it should mean that currency should not have sovereign sanction.

    However, that not being likely – the next best solution for India would be to allow competing currencies within its borders to compete with the RBI. This will allow India to “manage” its trade with other trade “managers” – yet prevent the RBI from creating policies that would limit the freedom of Indian citizens.

    However, in this era of electronic transactions – people have argued that using gold/suvarna or silver/roupya based currencies would be retrograding.

    Transactions don’t need to be in terms of physical coinage, but should be based on the existence of the coinage. This existence does not need to be in the possession of the government, but the government should enforce contracts that are created based on their presence.

    Indic kings, unlike their European counterparts – never – made currency their sovereign monopoly.

    The “third” currency will work only in coexistence of monetary freedom within India’s borders.

  2. March 13, 2009 at 3:01 pm

    There are two parts to the currency system. At an individual level, all that is required is:-

    1. There should be no state restrictions on gold ownership.

    2. A Third Front Government in India is likely to bring just that – and is likely to the most dangerous consequence of this election.

    At an international trade and Government finance mechanism level, a different mechanism: –

    3. From the current Bretton Woods oriented system to any ideal currency situation will need a transitory currency and trade system. The Third currency option is a interim arrangement.

    4. Till 1947, India had multiple currencies and fairly liberal gold ownership rules – with a strong regulatory system restricting gold imports.

    5. Post 1956 lurch leftwards, Gold restrictions increased – culminating in the Morarji era.

  1. September 25, 2009 at 8:09 pm

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