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Posts Tagged ‘Bretton Woods

Retiring the American dollar

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Off into history's sunset, like the cowboy. This image (modified) is called 'Dollar Green' by the artist mancaalberto (http://mancaalberto.deviantart.com/)

Off into history’s sunset, like the cowboy. This image (modified) is called ‘Dollar Green’ by the artist mancaalberto (http://mancaalberto.deviantart.com/)

Seventy years ago, to the very month, a man named Henry Morganthau celebrated the creation of a “dynamic world community in which the peoples of every nation will be able to realise their potentialities in peace”. It was the founding of what came to be called the Bretton Woods institutions (named after the venue for the meeting, in the USA) and these were the International Bank for Reconstruction and Development – better known as the World Bank – and the International Monetary Fund.

None of the lofty aims that seemed so apposite in the shattering aftermath of the Second World War have been achieved, although what has been written are libraries of counter-factual history that claim such achievements (and more besides) commissioned by both these institutions and their web of supporting establishments, financial, academic, political and otherwise. Instead, for the last two generations of victims of ‘structural adjustment’, and of ‘reform and austerity’ all that has become worthwhile in the poorer societies of the world has been achieved despite the Bretton Woods institutions, not because of them.

Now, seventy years after Morganthau (the then Treasury Secretary of the USA) and British economist John Maynard Keynes unveiled with a grey flourish a multi-lateral framework for international economic order, the Bretton Woods institutions are faced with a challenge, and the view from East and South Asia, from Latin America and from southern Africa is that this is a challenge that has been overdue for too long.

Let's get the de-dollarisation of the world started.

Let’s get the de-dollarisation of the world started.

It has come in the form of the agreement between the leaders of five countries to form a development bank. Russia’s President Vladimir Putin, China’s President Xi Jinping, India’s Prime Minister Narendra Modi, Brazilian President Dilma Rousseff and South Africa’s President Jacob Zuma made formal their intention during the sixth summit of their countries – together called ‘BRICS’, after the first letters of their countries’ names – held this month in Brazil.

What has been set in motion is the BRICS Development Bank and the BRICS Contingency Reserves Arrangement. Both the new institution and the new mechanism will counter the influence of Western-based lending institutions and the American dollar, which is the principal reserve currency used internationally and which is the currency that the IMF and the World Bank conduct their ruthless business in (and which formulate their policies around, policies that are too often designed to impoverish the working class and to cripple labour).

At one time or another, and not always at inter-governmental fora, the BRICS have objected to the American dollar continuing to be the world’s principal reserve currency, a position which amplifies the impact of policy decisions by the US Federal Reserve – the American central bank – on all countries that trade using dollars, and which seek capital denominated in dollars. These impacts are, not surprisingly, ignored by the Federal Reserve which looks after the interests of the American government of the day and US business (particularly Wall Street).

In the last two years particularly, non-dollar bilateral agreements have become more common as countries have looked for ways to free themselves from the crushing Bretton Woods yoke. Only this June, Russia’s finance minister said the central banks of Russia and China would discuss currency swaps for export payments in their respective national currencies, a direction that followed Putin’s visit to China the previous month to finalise the gigantic US$400 billion deal between Gazprom and China National Petroleum Corporation (CNPC). It is still early, and the BRICS will favour caution over hyperbole, but when their bank opens for business, the sun will begin to set on the US dollar.

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Come July, could an African or Asian head the World Bank?

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UN Millennium Development Goals 1 to 4

Who will head the World Bank after 2012 June? A global coalition of development activists and non-governmental organisations is calling on the World Bank’s governors to ensure that Bank President Robert Zoellick’s successor is chosen in an “open and merit-based process” that will give borrowing countries a major say in the selection.

In an open letter released shortly after the Bank’s announcement this week that Zoellick will step down at the end of his five-year term in June, some 60 groups and activists from around the world said any candidate should gain the “open support” of at least the majority of World Bank member countries and of the majority of low- and middle-income countries that make up most of its borrowers.

IPS News has reported that the arrangement which currently exists is absurdly called an informal “gentlemen’s agreement” (there are no gentlemen in this matter, now 68 years old, of leading poor countries into irredeemable debt and condemning their citizens to hardship and poverty). This agreement of exploitation, for that is what it is, exists between the USA and the countries of western Europe – specifically Britain, France and Germany – and provides that a national of USA will hold the top position at the World Bank Group, and that a national of Europe will hold the managing directorship of its sister institution, the International Monetary Fund (IMF).

“It’s a World Bank, not a US Bank. It needs the best candidate to get the job with support of wide Bank membership, not just the US,” IPS reported Collins Magalasi as having said. Magalasi is executive director of Afrodad, one of the lead NGOs which released the open letter calling for a change in the way the World Bank Group’s leader is chosen. The coalition includes Oxfam International, Civicus, and the African Forum and Network on Debt and Development (Afrodad).

The open letter has said: “The candidate must gain the open support from at least the majority of World Bank member countries, and from the majority of low and middle-income countries. As the Bank only operates in developing countries, and has most impact in low-income countries, any candidate that was not supported by these countries would seriously lack legitimacy. In addition to encouraging developing countries to nominate their own candidates, the best way to ensure that developing countries play a central role throughout the selection process is for the successful candidate to be required to gain the support of a majority of both voting shares and member countries.”

UN Millennium Development Goals 5 to 8

“This need not require any formal changes to the Bank’s articles of agreement, but could simply be agreed by the Board, to build on the limited proposals agreed in April 2011. To make this work, countries would need to vote independently, not through their constituencies, and declare their support publicly. It is time for the US to publicly announce that it will no longer seek to monopolise the Presidential position.” You can read the full letter at the website of the European Network on Debt and Development (Eurodad).

Bloomberg Businessweek has reported that China has called for the next World Bank chief to be picked based on merit. The next leader should be selected “based on the merit principle and open competition,” Foreign Ministry spokesman Liu Weimin said at a briefing in Beijing. Liu was apparently responding to a question on whether the next head should be from a developing nation. Since according to the US Treasury, the largest foreign holder of US debt is China, which owns about US$1.2 trillion in bills, notes and bonds, that sounds like an ungentle nudge from across the Pacific that it’s time the old order was scrapped.

The World Bank Group is quite top heavy. As its senior management the WB Group has: one president, three managing directors, a chief financial officer, two senior vice presidents, six vice presidents for the World Bank Group’s six operational regions, seventeen vice presidents for the Group’s divisions and departments, one director general. The IFC (International Finance Corporation) has one executive vice president and chief executive officer, nine vice presidents. The MIGA (Multilateral Investment Guarantee Agency) has one executive vice president, one vice president and chief operating officer, five directors.

While from the three managing directors downwards it may look like the WB Group senior management is representative of the variety of countries to which it lends, this is illusory – these people are financiers first and are free-market standard-bearers and privatisation evangelists. At those positions in the World Bank, as in the IMF, there are no nationalities – there is only capitalism.

Written by makanaka

February 16, 2012 at 18:45