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Bretton Woods 2.0

Digging through the rubble of the financial crisis, Jeffrey Sachs lays out his agenda for a new international financial architecture, aka Bretton Woods 2.0 (version 1.0 was the system laid out in 1944, composed of the International Monetary Fund, the World Bank and the ITO->GATT->WTO):

First, we need to restructure global finance, based on an expanded system of capital adequacy standards, financial reporting, system-wide risk management, and new lender-of-last-resort capacities. Derivatives traders, hedge funds, and broker dealers would be brought under regulatory control. The IMF would be empowered to be a true global lender of last resort (as I urged a dozen years ago, warning of the threat of self-fulfilling panics). To make this possible, a small tax on financial transactions – a Tobin tax – would be implemented to expand the IMF’s war chest in case of crisis and to fund other urgent international needs.

Second, the new global financial structure should help to rescue the world from human-induced climate change. A straightforward tax on the carbon content of fossil fuels, levied by all countries, would do the job, and much better than the enormously cumbersome emission-trading system concocted and championed by the same financial engineers who brought us our current banking crisis. Most of the carbon-tax revenues would stay at home in each country, to help finance low-emission technologies. Some would be directed to finance three global public goods: research and development on sustainable energy; transfer of sustainable-energy technology to low-income countries; and climate-change adaptation.

Third, the World Bank should be refocused with clear goals, and accountability for their success. Specifically, the bank should have one overarching assignment: helping the poorest countries achieve the millennium development goals to reduce poverty, hunger and disease. The bank is poorly organised for such leadership today. Like any bureaucracy, it avoids being held accountable for measurable results. With a tighter focus on the MDGs, the bank should also be supported with much larger financial resources from new revenue sources (such as the Tobin tax), so that the bank can better help the poorest countries expand vital infrastructure (power, roads, water, sanitation and broadband networks).

Fourth, the global trade agenda should be integrated with the finance, and environment objectives. The Doha trade round has failed because the world could not see any urgent reasons for its success. A trade agreement worthy of the effort would do two main things. Importantly, it would help the poorest countries to be more productive so that they can be full participants in the global trading system. “Aid for trade” would help these countries to build the skills, roads, bridges and clean power grids to support increased trade. In addition, global trade would promote environmental sustainability, to help enforce compliance with reduced carbon emissions and protection of endangered biodiversity

Enjoy and share:


Comment from Todd Archer
Time: October 21, 2008, 8:32 pm

Doctor Shock said:

“Derivatives traders, hedge funds, and broker dealers would be brought under regulatory control.”

Until something sexier comes along to replace hedging and derivatives.

“The IMF would be empowered to be a true global lender of last resort”

Hm. The US would be delighted at having a hand on _that_ spigot . . . .

“The Doha trade round has failed because the world could not see any urgent reasons for its success.”

Wow. Mystification in spades . . . .

““Aid for trade””

Aaaand there he goes back on the merry-go-round. (Not to mention working to pry open peripheral economies more.)

Comment from Leigh Thomson
Time: October 22, 2008, 6:18 am

It would probably be useful at this point if we could pull out elements from the many voices now weighing in on alternatives, options which we would like to see, eg. the Tobin Tax.

Process is going to be a key point of difference. We have civil society groups around the world who want the WTO disbanded, for good reason, and who think the Bretton Woods institutions are/were hopelessly top-heavy and co-opted. And there are the reformers. Perhaps one thing that is common is a concern about process. Certainly rushing things through is not a good process, and I think one of the more helpful insights on this blog has been that there is indeed a gap between what commercial banks are getting and what they’re ready to lend, revealing some cushion space, and there are options like gov’t voting equity shares in the banks to stall any real chaos, so we really should be demanding better substantial inclusive process for developing alternatives within as well as amongst countries at a very participatory level.

Comment from Todd Archer
Time: October 22, 2008, 4:14 pm

Leigh said:

“we really should be demanding better”

Yeah, but who’s this “we” you mention?

Comment from Andrew Jackson
Time: October 22, 2008, 4:32 pm

Nice to have Sachs on record for a Tobin tax.

Less so re support for Doha. He is surely right to say that global finance and global trade are not separate compartments, but huge trade imbalances are one of the root causes of the financial crisis, and trade reregulation rather than further deregulation has to be part of the solution.

Comment from Leigh Thomson
Time: October 23, 2008, 7:08 am

Todd’s question is related to the question of the ‘who’ and ‘how’ of developing alternatives.

The IMF, as evidenced in the case of Pakistan now, is intent on further ratcheting it’s punishing structural adjustment programs. The IMF has not changed with this crisis, simply become more vicious.

The G8 appear to be promoting this course, and the militarization globally that will be required to keep this system in place for the near future. Clearly unsustainable.

So the question becomes who/how/where/in what forums otherwise could better solutions be developed. Perhaps dialogues of concerned people around the world, and perhaps through the UN, some kind of system resembling justice could be developed.

Comment from Leigh Thomson
Time: November 1, 2008, 7:14 am

An impressive 630 groups around the world to date have signed the Statement on the proposed Nov.15 ‘Global Summit’ to reform the international financial system, linked from: .

This statement, calling for broader input to the process, was released Oct.29, and the UN General Assembly met on Oct. 30 with some very good statements made, linked here:
The Interactive Panel of the United Nations General Assembly
on the Global Financial Crisis
30 October 2008, United Nations Headquarters

Opening statement by the President of the General Assembly
Presentation by Joseph Stiglitz
Presentation by Sakiko Fukuda-Parr
Presentation by Prabhat Patnaik
Presentation by Calestous Juma
Presentation by François Houtart
Statements by Member States
Closing statement by the President of the General Assembly

Please note that the current President of the UNGA is Miguel D’Escoto Brockmann, former Sandinista priest of the Maryknoll order, founder of Orbis press.
Joseph Stiglitz is chairing the UN committee tasked with initial review. Sakiko Fukuda-Parr, a panelist, teaches at the New School and had some excellent comments, as did a number of other panelists.

definitely worth a read, an opening of possibility…

Comment from Leigh Thomson
Time: November 3, 2008, 11:26 am

Halifax Initiative has this and related IMF materials in its Oct.31 update, which may also be useful for those seeking articles for popular media:

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