Monday, January 05, 2004

Rules To Tame The Global Casino

This article is a few years old but well worth the post, as I am also an advocate of reform of the international financial architecture, and more than happy to list anyone with serious agreement. Hazel has many interesting and sound points of view on many subjects of interest to all of us.

Hazel Henderson

What is needed is nothing short of a "New Bretton Woods" the international conference which in 1944, created the first global architecture. These multilateral rules and agencies, including the World Bank and the IMF, served the world economy until 1971 when US President Nixon unilaterally pulled the plug by slamming the US gold window shut.

Since then, the world has lurched from crisis to crisis - through a roller coaster of global recessions, currency gyrations, and many ad hoc arrangements for floating currencies, capital movement controls and convertibility rules. Today's growth of financial flows: daily $1.5 trillion global tides which slosh back and forth -- create asset bubbles on Wall Street and currency meltdowns in Asia. Huge lossses, collapses of banks and brokerages resulted -- as volatility and volumes grew.

Investors began hedging their holdings by buying future contracts "derivatives" -- betting on which way interest rates and currencies would move. Today, there are between $30-50 trillion in such derivative positions -- where each player hedges their individual risk by adding such risks to the whole global system.

Back in 1995, at Copenhagen a set of proposals emerged in the report of the Global Commission to Fund the United Nations (which this author co-edited). We called for: A very small (0.05%) tax on all currency trades, first discussed at Bretton Woods in 1944 and later versions proposed by US economists James Tobin (in 1975) and by Lawrence Summers, now Under Secretary of the Treasury, in 1989. Such a tax would not hurt real, long-term investors, but would bite speculators who move money across borders often hundreds of times a day.

A global version of the US Securities and Exchange Commission (SEC) to harmonize regulations of securities and currency markets. Such an international supervisory body would curb today's unregulated global casino of insider trading, fraud, money-laundering and capital flight. Today, speculators' "bear raids" attack perceived weak currencies such as those in 1993 which drove the British pound down and out of the European Monetary Union (EMU).

A proposal that the world's major central banks get together and set up their own "public utility" currency exchange. Thus they could compete with today's money center banks and speculators and properly oversee their currencies to protect their domestic purposes.

Clearly, it is time for a new Bretton Woods conference -- convened by the United Nations --to redesign the world's financial architecture and at last, cooperatively write new rules needed to tame the global casino. ...Continued

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