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The global financial crisis triggered by the subprime mortgage mess in the United States gives the lie to the neoliberal economic philosophy that deregulation and liberalization bring about economic prosperity, says Joseph Stiglitz, a Nobel prize-winning economist.
In a recent interview with The Asahi Shimbun, the 65-year-old Columbia University professor emphasized that what's needed now is a new international financial framework based on a new global reserve currency.
Q: Will we see a further decline of the dollar in the future and will we see the advent of a dual-currency system?
A: It's clear that the role of the United States, as a reserve currency (nation), maybe even the role as the (world's primary) financial market, is going to be diminished ... still there, but it will be diminished.
But I've argued in my book "Making Globalization Work" that moving from a dollar reserve to a two- or three-currency reserve, would lead to a more unstable system. We need a global reserve system, and that's what I advocate in the book.
We need a multilateral system that doesn't depend on any currency. If you have two, then if there's a problem in the United States, everybody will run to the euro. And if there's a problem in Europe, everyone runs to the United States. You'll get a lot of volatility.
'Bretton Woods moment'
Q: Are you saying that we would need a "currency basket" in order to secure stability?
A: (What is needed is) Bringing all the currencies, like the SDRs (special drawing rights), but SDRs have only been periodic. Make this more permanent.
Q: At the famous international economic conference at Bretton Woods, New Hampshire, in 1944, which established a postwar global monetary and financial order, John Maynard Keynes, who represented Britain, proposed the creation of a world currency unit called the Bancor. Are you talking about a similar type of currency basket? Would that be the kind of "basket" you had in mind?
A: Exactly, in my book I argue that that's what we need. It's a multilateral system. We need to have a new institutional framework and that's why I'm hopeful that there's the beginning of a discussion to have an international meeting, and that's one of the things I hope will come out of that.
Q: Do you think we need a second version of the Bretton Woods conference?
A: This is a "Bretton Woods moment."
Q: So how do you analyze the nature of the crisis? Some critics may say this marks the end of neoliberalism.
A: I'll say that it should be the end of neoliberalism. It should be the end of the view that deregulation and liberalization lead to economic efficiency. September 2008 should be to neoliberalism and market fundamentalism what the Fall of the Berlin Wall was to communism. Everybody understood that communism was flawed, but the Fall of the Berlin Wall defined it and made it clear. But most people understood that neoliberalism was a flawed idea. My own research explained it. Experience showed it. But this is the dramatic evidence that will make it very difficult for people to say, I believe in deregulated markets.
Q: How do you expect the crisis to develop? Will another Great Depression occur?
A: I think that the world of today is different from the world of 75 years ago. We have a more service sector-oriented economy. That probably means the unemployment rate will not get as high. More people will be part-time involuntarily. We're already seeing that. But there may be less massive unemployment.
Now, the full answer, of course, depends on what the government does. We are off to what you might say is a very strange beginning because the government has done a massive amount, but the design has been very bad. So we spent trillions (of dollars) around the world, but the money has not been well spent. So for instance, it's been very much a trickle-down ... throw enough money at Wall Street and some money will help the rest of the economy. I'm very pessimistic. It would have been worse if we had not done anything, but we could not have done much worse in the way we did it. It is badly designed.
Originally posted by budski
reply to post by Sator
A multilateral system would be everyone getting behind a single world currency, rather than some countries using it and others not using it.
At least that's how I'm reading it.
If the world bank runs this, it will be a farce - much the same as the UN.
Corruption is rife in this institution.
We need a multilateral system that doesn't depend on any currency