The Classic Liberal Blog

The dollar should be replaced with a global currency, the United Nations has said, proposing the biggest overhaul of the world's monetary system since the Second World War.

In a radical report, the UN Conference on Trade and Development (UNCTAD) has said  ... the present system, under which the dollar acts as the world's reserve currency , should be subject to a wholesale reconsideration.

In essence, the report calls for a new Bretton Woods-style system of managed international exchange rates, meaning central banks would be forced to intervene and either support or push down their currencies depending on how the rest of the world economy is behaving.

The proposals would also imply that surplus nations such as China and Germany should stimulate their economies further in order to cut their own imbalances, rather than, as in the present system, deficit nations such as the UK and US having to take the main burden of readjustment.

"Replacing the dollar with an artificial currency would solve some of the problems related to the potential of countries running large deficits and would help stability," said Detlef Kotte, one of the report's authors. "But you will also need a system of managed exchange rates. Countries should keep real exchange rates [adjusted for inflation] stable. Central banks would have to intervene and if not they would have to be told to do so by a multilateral institution such as the International Monetary Fund."

This is Keynesianism in a nutshell ... They want a global central bank to mandate x amount of inflation per country, per year.

In their bizarre point of view, China and Germany haven't counterfeited enough money (via debt). As it is now, central banks inflate their currencies seeking purchasing power parity with other currencies (mainly the dollar). In their omnipotence, the UN "economists" have determined that some countries do not participate properly in the counterfeiting (inflation) game. To cure this perceived problem, they want the authority and control of all the monies of the world so they can inflate by whim.

China's current imbalances are because they pegged their currency below the market against the dollar. This forced them to import the Federal Reserve's inflation. As in America, where the Federal Reserve's inflation created an over exposure to the housing market, it also created over exposure in the production of goods for export in China. Further inflating China's currency would only result in more mal-investment into goods for export.

There is virtue in a fixed exchange rate because it imposes discipline over the temptation to inflate. But fixing currencies to something "artificial," is meaningless. To accomplish a true fixed-exchange rate, you must use something valuable, like gold.

This whole thing is just more cover-up for the central banks, who inflated themselves into a deep hole ... and screwed over the rest of us in the process.