No Council on Foreign Relations
Digital gold and a flawed global order , Benn Steil, Senior Fellow and Director of International Economics, January 5, 2007Financial Times This op-ed
(...) It was well understood before the Bretton Woods era that monetary nationalism would fundamentally change the way capital flows naturally operate, making of a benign economic force one that would necessarily wreak havoc with flexible exchange rates. The global monetary order that has emerged since the 1970s is now globalisation’s greatest source of vulnerability.
What is to be done? Realistically, sauve qui peut must be the message for nations whose currencies are not wanted by foreigners. Dollarization—abandonment of parochial currencies in favor of the dollar, euro or other internationally accepted money—is, in a world of fiat currencies, unsupported by gold or silver, the only way to globalize safely.
Of course, the status of internationally accepted money is not heaven-bestowed and there is no way effectively to insure against the unwinding of “global imbalances” should China, with nearly $1,000bn (€755bn) of reserves, and other reserve-rich central banks come to fear the unbearable lightness of their fiat holdings. Digitized commodity money may then be in store for us. Gold banks already exist that allow clients to make and receive digital gold payments—a form of electronic money, backed by gold in storage—around the globe. The business has grown significantly in recent years, in tandem with the dollar’s decline.
As radical and implausible as it may sound, digitizing the earth’s 2,500-year experiment with commodity money may ultimately prove far more sustainable than our recent 35-year experiment with monetary sovereignty.
This article appears in full on CFR.org by permission of its original publisher"
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