Chinese President Hu Jintao set the tone for his upcoming meetings with US President Barack Obama by saying that the current world currency system, which depends almost exclusively on the U.S. Dollar, is a "product of the past." These are strong words from Jintao that are sure to receive a careful response Washington. After all, the US benefits strongly from having the "global" currency, and trying to stretch out this advantage for as long as possible seems logical. But wow, it sure is an awkward situation. What is the deal with this financial system?
The current world financial system was put in place largely after WWII, and it awarded a disproportionate amount of power to the winners of that war. The institutions in place are resistant to change, and we are thus left with a financial system run by the winners of a war that happened 65 years ago. WWII's outsiders, including China, India, and Brazil, are given only minor roles in these institutions despite their rising economic power.
The problem described above manifests itself across several world agencies. They are controlled by WWII's winners, while everyone else is left out wondering why they should participate in this dated system. It would be as if here in the U.S., the original 13 colonies still controlled the whole nation, simply because they were first, they set it up that way, and they refuse to change it. While organizations such as the World Bank and the United Nations have functioned adequately, without periodically changing to reflect changes in the world, they will inevitably become irrelevant.
Jintao is right to question the dollar dominated currency system. While he may advocate a shift to the Yuan or Euro (or to a combination), I would like to see him go a step farther and call for a global currency. It would be simpler, it would bring everything into the same economy, and it would do all sorts of other awesome things that I am not even thinking of.
Perhaps the issue is that if a nation does not control its currency, it lacks leverage in the event of an economic crisis. So perhaps a global currency would require greater global economic cooperation. Is that a bad thing?
A global currency strikes me as inevitable. All that is stopping it is a lack of imagination and willpower, and that countries may view a global currency as an attack on their sovereignty. The stresses of globalization will require massive changes in the way world systems work, not minor adjustments. A world currency is one example. Others include a global government, a global language, a global education system, and a global transportation system. If we continue using the 20th century nation-state model, we will become extremely stressed.
People instinctively seem afraid of ideas of this size, but is uniting the countries of the world really much different the 13 colonies uniting to form the United States? We can accomplish more together, on the same page, than we can separated (even by fences). We are holding ourselves back. Mr. Jintao reminded me of this with his suggestion about looking at currency issues. Ultimately, Mr. Jintao and I have the same complaint. I am just thinking much further down the road than he is. But he is taking a step in the same direction, and I would rather see something happen than nothing. Therefore, I applaud Mr. Jintao's efforts to diversify the current, old system. The world has changed and continues to change. We must have systems worthy of these changes.
