Final Push for World Government

Opinion: G-20 Must Draw Up a 'New Global Monetary System' to End ‘Mother of All Crises’

November 5, 2010

Mahathir Mohamad (Christian Science Monitor) – The G-20 group of countries that will be meeting in Seoul, South Korea represent only themselves. How they were selected and what qualified them is a mystery. But what they will be deciding will no doubt affect the entire world. One can only hope the effect will be good for the poor economies as much as it must be for the rich economies.

As it has been for the past few meetings, the current financial super-crisis will be on the agenda. It so far has defied solutions by the G-20 and by others. Will the meeting in Seoul be any different?

Defy convention and do the unthinkable

Malaysians are not in the same class as those people in the International Monetary Fund (IMF), the World Bank, the world-renowned financial institutions, and the Wall Street people. But Malaysia has had the bad taste of a currency crisis precipitated by the speculative traders. We managed to overcome the crisis by ignoring convention and doing the unthinkable.

Might it be possible that the present crisis, too, needs to be dealt with by doing the unthinkable? Of course, the causes of the present crisis are not exactly the same as the East Asian financial crisis of 1997-1998. And the scale is also different. Saddam Hussein, if he were alive, would call the present crisis “the mother of all crises.”

But still there is something common between the East Asian financial crisis and the present crisis. Both are man-made. Both are the result of abuses of the prevailing systems by greedy people.

For another view: Economic collapse: Don't blame the free market

Criminal abuses by certain market players

Taken from that angle, the response to the current crisis may well lie in adapting the solutions to East Asia’s earlier crisis, perhaps with particular reference to the Malaysian way.

What Malaysia did was reject the belief that the crisis was due to bad financial management, contagion, and loss of confidence in our institutions. Instead, Malaysia insisted that the crisis was due to deliberate manipulation of exchange rates by currency traders.

To solve the present crisis, the first thing to do is to acknowledge that it is the result of criminal abuses by certain market players. So much has been lost and no amount of currency printing will bring back the wealth.

The rich must accept that they will become poorer. Just as they used to readily advise countries in financial trouble that when companies lose money, the best thing to do is shut them down, so must they accept that all those institutions which lost money must be shut down.

Everyone must accept the reality

The ensuing demotion of those who had been wealthy will bring about massive social problems. Everyone, rich and poor, will feel deprived, unable to enjoy the standard of living they were used to. In Bangkok, at the height of the crisis, millionaires had to sell toys on the streets. In Indonesia, workers thrown out of jobs rioted, looting shops, killing the unfortunate shopkeepers, and burning the premises. On the advice of the IMF, subsidies for food and fuel were withdrawn, resulting in starvation and even deaths.

The suffering of the newly impoverished rich will not be nearly so dire as was seen in Bangkok and Jakarta, but there will be much suffering nevertheless. The old lifestyle of the rich must be given up.

Once they accept the reality of the situation, they should, together with the poor countries, sit down and draw up a new global monetary system, a much more open banking system, and a new financial system.

Currencies should be valued against gold

The new monetary system should be based on gold, as represented by an international currency to be used for international trade only. Domestic currencies of all countries would be valued against gold.

The banks should be allowed to create a limited amount of money. They must be closely regulated and watched by governments. The smaller amount of money that banks can lend will no doubt lead to slower growth of the economies of countries. But it is better to have slower growth than repeated international financial crises and the accompanying social disasters.

Financial transactions must be transparent and regulated by governments. There should be no offshore financial houses. Money must be lent only for real business; that is, for the production of goods and services and for trade. Trading in currencies must be classified as a business crime. Short-selling should be disallowed. Leveraging should be severely limited.

The should be IMF and World Bank democratic

The IMF and the World Bank should be reorganized and set to work in the interest of poor countries. They should be democratic in terms of the appointment of officers to run them.

If all these things are done, the current financial crisis is more likely to finally be stopped. Financial crises would be less likely to occur in the future. Economic growth would be real – creating jobs, spinning off new businesses, and enhancing world trade. Mergers and acquisitions must be by willing buyers and willing sellers. An internationally accepted antitrust law would prevent monopolies by the corporate giants of the rich countries.

Free trade should be regulated

Free trade should be regulated. Yes, made less free. Countries should be allowed to protect their infant industries against the world giants.

These are radical measures. But they would repeal the greed and lack of transparency that have infected the global economy.

To be sure, such measures will require far greater political will on the part of the G-20 than has so far been mobilized. But the roiling instability that remains in the international system ought to make it evident that half measures will not do. Sooner or later, it will be evident, even to the G-20 leaders, that, when it comes to the mother of all crises, only the mother of all solutions will bring the crisis to an end.

Mahathir Mohamad is the former prime minister of Malaysia and the author, with Shintaro Ishihara, of “An Asia That Can Say No.”