Just before the Washington G20 summit in November last year, David and I co-wrote a paper entitled A Bretton Woods 2 Worth of the Name. As the title implied, we were politely sceptical of some of the political rhetoric then flying around, comparing the G20’s discussions about bank capitalisation with the rather more far-reaching discussions held at the Mount Washington Hotel in 1944.
Now, though, things are getting more interesting. Two days ago, Zhou Xiaochuan – the governor of China’s central bank – quietly published a paper on the People’s Bank of China website, entitled Reform the International Monetary System. It opened like this:
The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question, i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF?
Later, Zhou continues that:
The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies.
Now this line of thinking really does take us straight back to Bretton Woods – and in particular to Keynes’s proposal for a new global currency called the bancor, and a new global institution called the International Clearing Union (ICU). Continue reading