When the finance ministers and central bankers of the world’s 20 largest economies gather in Pittsburgh on Sept. 24, they can congratulate themselves for averting a 1930s-type meltdown. But nothing the G-20 has done, or is likely to do, will prevent or substantially moderate the next global crisis. That will require deep-seated, global financial reforms. And for such change to take root, something else will be needed: the establishment of a global central bank.
I can hear the howls of critics. World Government! A Conspiracy of Bankers! In the U.S. Congress the aversion to such an institution would make the dogfight over health care look like a genteel dinner party. So right now there is zero chance that the U.S.—and other countries, such as China, that zealously guard their sovereignty—would support the idea. But if critics could suspend the hyperventilating for a few minutes, they’d realize a global central bank is becoming a necessity in today’s complex, interconnected world economy.
Why? Think about the responses to previous financial meltdowns—the Latin American debt crisis of the 1980s, the Asian financial crisis and the collapse of Long-Term Capital Management in the 1990s, the Internet stock implosion early in this decade. Following each crisis, governments promised to create new rules and institutions—a fresh “financial architecture,” in the parlance of pundits. But little was done. As a result, each successive crisis has been worse than the last. Each has involved more countries and asset classes. Each has been more globally synchronized. Each has more clearly shown that private financial institutions compete too fiercely for markets and profits to regulate themselves. Bottom line: The cost of failing to implement a global structural response—the lost economic growth, the lives destroyed—has escalated dramatically.
At the heart of this reality is a simple fact: Governmental oversight remains national, while financial institutions are more globally intertwined. No top official denies this dichotomy. Jean Claude Trichet, president of the European Central Bank, recently bemoaned the lack of international coordination needed to manage the “deeply integrated global economy.” U.S. Treasury Secretary Timothy Geithner warned that “we need a common global solution to these markets, not separate regional solutions.”
As the current credit crisis has shown… Read more here.
Source: BusinessWeek, by Jeffrey E. Garten;
Photo: www.prisonplanet.com (Feb 2009)
