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The future of the global financial system seems to be unclear. Most economies around the globe are currently suffering from multiple shocks, which may result in a doomsday scenario.
What can happen to the global financial system? Is there a way out of the crisis? Robert Mundell, is a Nobel Prize-winning Canadian economist, seems to have found a solution.
Central banks around the globe keep cut interest rates down to record-low levels while expanding their money supplies through continuous money printing. While the aftershocks in the form of major inflation aren’t still there, most financiers are convinced that it is high time to create a whole new global financial system until it is not too late.
As for Robert Mundell, he believes that in order to start something new, first it is vital to learn a lesson from the past.
The development and evolution of a global financial system is a complicated and controversial process, Mr. Mundell reminds. The Bretton Woods system should have resolved the issue as at that time all the currencies was pegged to gold and could be converted to it. However, the system collapsed in the 1970s, a couple of decades after it was created. The Bretton Woods system was followed by a system of floating exchange rates, which is determined by the market.
At this point, economists around the globe are trying to make exchange rates more controllable. Still, the existing system cannot work properly all the time. The IMF’s supervision system has failed to take the situation under control. Therefore, there is still an urgent need in tough fiscal coordination.
As there is still no unified global currency system, the issue is especially burning these days amid global economic weakness and uncertainty. Even under the Gold Standard, there was no currency exchange coordination. After World War I, most countries faced hyperinflation as the result of excessive money printing.
As the Euro, the Japanese Yen, the US Dollar and other major currencies are suffering from multiple problems, it is time to think about alternatives. Another attempt to create a stable global financial system based on multiple currencies will most likely fail again.
Mr. Mundell is convinced that a new currency should belong to the entire world instead of a single superpower like the USA.
The new currency may be virtual and based on other major currencies. It should be easily convertible. Mr. Mundell conventionally called it the “device”.
Moreover, it is necessary to determine the central bank and the emitter of the new currency. Still, the “device” plan may fail due to possible financial disintegration.
Robert Mundell says that the probability of creating such a currency within the next 5 years is only 30%. He also concedes that Asia may create a common Asian currency within the next couple of years.
Originally posted by Spookycolt
I'm not an economist but isn't the Euro having significant problems itself which would make the idea of one global currency pretty much a ridiculous notion.
I mean if one small part of the world can't even handle the same currency how are you going to make one work for the entire world.
Originally posted by Spookycolt
I'm not an economist but isn't the Euro having significant problems itself which would make the idea of one global currency pretty much a ridiculous notion.
I mean if one small part of the world can't even handle the same currency how are you going to make one work for the entire world.