Currencies of desire: what's wrong with the money system - and what hope for change? Vanessa Baird draws a few conclusions

New Internationalist, Oct, 1998 by Vanessa Baird

THE money system as it stands today is remarkably efficient. Remarkably efficient at making the majority of us lose out, that is. Our labour and its value isn't factored into its humming computers. The ciphers that zip across the globe, bringing hardship to the many so that a few fatcats can prosper, are empty of conscience.

But three recent events have shown some chinks in its armour.

The first is a David and Goliath story. Imagine high-powered politicians from the richest countries with reams of statistics and analysis on why a set of international investing rules would make the world a better place. Imagine grassroots activists from various Non-Governmental Organizations around the world, linked via electronic mail, who are convinced it won't.

Who wins? Well, in the case of the routing of the proposed Multilateral Agreement on Investment it was the activists who won the day. They did it by using the Internet to broadcast information instantly, worldwide, and by pooling information that would embarrass their governments. In doing so they broke down the wall of secrecy that traditionally surrounds international negotiations.

The success of such networking, involving groups like the Penang-based Third World Network, was clear in April this year when ministers from the 29 industrialized (OECD) countries admitted that the global wave of protest had swamped the deal. It is unclear when, if ever, they will try again.

The second glimmer of hope came from a quite unexpected source: the World Bank. It's common for radical economists to denounce the IMF for its socially disastrous structural-adjustment policies in the `developing' world. But when criticism comes from the Chief Economist of the World Bank it takes one by surprise. First, Joseph Stiglitz expressed his doubts about the IMF rescue package for East Asia. Then he took a swipe at the orthodox view that high interest rates and anti-inflationary policies are the necessary bitter pill that Majority World countries have to swallow. He went on to say that `the dogma of liberalization has become an end in itself and not a means to a better financial system.' Moreover, deregulation had led to crisis in Thailand and the `notorious Savings and Loans debacle in the US'. (1) This amounts to heresy in IMF and World Bank terms. But Stiglitz and other critics of the IMF's rescue package for East Asia have been proven right as the affected countries have sunk deeper into recession. It's not much to be hopeful about, but at least someone in the World Bank has got their eyes open.

The third glimmer came in May when the heads of the rich world met at Birmingham, England, for the annual G8 summit and found their conference hall surrounded by a human chain of 50,000 protesters calling for the cancellation of Third World debt. This unprecedented display of solidarity with the world's poorest nations was inspiring, though to date only Norway seems to have taken any positive action.

But to see cancellation of Third World debt as an act of `charity', as some plainly do, is obscenely inappropriate. Not only have debts been paid several times over in interest charges, but debt is actually at the core of what is so wrong with our money system today.

Most of the money in the world is created, out of thin air, by banks through making loans (see page 16). What's more the loans to the Third World almost always have to be paid back or serviced in dollars or other `hard' currencies. This means that if the currencies of Third World countries take a battering, as they so often do, the cost of their debt rises. Their negotiating position is thus continuously being weakened.

It is impossible to say this loudly enough: the indebted countries owe us nothing.

The consequences of our debt-based money system for the Third World are starvation, ill-health and unemployment. By the end of 1998 half the population of Indonesia is likely to join the millions in sub-Saharan Africa who live below the poverty line.

As long as this system reigns, gross inequality will prevail even if we do decide to cancel Third World debt. As long as commercial banks are given the privilege of creating most of the world's money through making loans, this pattern will go on being replicated, albeit in a milder form, throughout the industrialized countries too.

Bucking the banks

It has to change. Abraham Lincoln knew this already in 1865, the year he produced his potentially groundbreaking Monetary Policy. In it he argued that the Government should create, issue and circulate `all the currency and credit necessary to satisfy the spending power of the Government and that of consumers'. In this way, he wrote, `the people will... be furnished with a currency as safe as their government. Democracy will rise superior to the money power.' (2)

Six weeks after making this proposal Lincoln was assassinated. If he had lived and been successful in pushing through his plans, it could have signalled the end of banking and money power in the US. One can only dream about how different the world might be today.