A Bouquet for Barack Obama
Published in Le Monde
(France) on 19 January 2009
by Abdoulaye Wade, President of the Republic of Senegal (link to
original)
I am in complete agreement with the President of the Dominican Republic when he says that the citizens of the Global South should not simply leave the North to deal with the current crisis. Speaking at the September 2008 meeting of the UN Assembly General in New York, he declared that it is the duty of the South to participate in the debate on global governance.
It is in that spirit that I would like in fact to address all the world's leaders with a bouquet of proposals for the US president-elect:
In my view, the world economy is in need of a form of leadership to take it in the direction of global development. In fixing the exchange rate at $35 per ounce of gold, the Bretton Woods agreement established a global economic order with the United States at its center. It emerged fairly quickly that, because of the relatively fixed quantity gold, the available amount of dollars was insufficient to supply the needs of rapidly-expanding world trade. Richard Nixon ended dollar-gold convertibility in 1970, thereby enabling the United States to issue an unlimited quantity of notes – in other words, to incur an unlimited quantity of debt. Nevertheless, the system was essential to international trade.
Following the decline in the dollar's value, which has eroded confidence in it as a currency, and the appearance of new forms of hard currency (notably the yen and the euro) which can play the role of international standard equally well, the system has been called into question, and the US is now being required to settle its debts. The problem appears insoluble unless we reinstate the dollar, this time without the link to gold, as the standard currency of the international monetary system.
This option – in my opinion wisest course if we are to avoid chaos – must be dependent on two conditions:
– The US must agree to subject itself to strict international monetary regulation, the terms of which are still to be defined;
– The developing countries must not be left to trail behind the system of world governance like the tail of a comet. We will make some proposals to that end.
Consequently I think that the dollar should be overvalued by international consensus, or at least by an agreement between nations with convertible hard currency who are willing to make certain sacrifices in order to get the world economy out of its current crisis. I am aware of the costs this would inflict on a number of countries, including those in the eurozone, but to a certain extent this overvaluation would simply be an anticipation of the inevitable decline of the euro. To avoid increasing the dollar burden on debtor countries, the volume of debts of governments and businesses would have to be correspondingly reduced. The difference would thus reduce inflation and, better yet, could be invested in development.
The allocation by quota of Special Drawing Rights (SDRs), which comprise the capital of the IMF, should be maintained, but not in proportion to the wealth of member states. It should take into account the inequality between North and South and, for example, allocate half or two thirds to the wealthy countries and the remainder to the Third World. This would improve the Third World's lot accordingly. I therefore propose a specific SDR for Africa which would be used exclusively to finance infrastructure, education, health, and information and communications technologies. Africa would take responsibility itself for all other sectors, primarily by opening itself up to foreign capital and by promoting co-operation between the public and private sectors.
One of the causes of the current financial crisis, as has been seen in the US with the collapse of Lehman Brothers and in France with the problems at Crédit Lyonnaise and Société Générale, is the lack of transparency in inter-bank transactions. The principle of customer confidentiality in banking is sacrosanct, but by means of a digital solution it could be combined with transparency too. Banks could be required to record large inter-bank transactions according to the nations involved, using source codes to designate global data and make them accessible to the public, without violating confidentiality.
Suspending the world's stock markets for a period of eight days could soothe tensions and prevent the amplification of financial instability by psychological factors.
It is certainly a good policy to extend assistance to the banks, but I also suggest that the American government should help the house-buyers who have fallen victim to the practice of subprime lending and borrowed sums far beyond the value of their assets. The government could fix the maximum debt of mortgage borrowers at 70% of their property's market value, and pay the creditors the difference. That would constitute an additional form of aid to the banks. This kind of limitation on household debt is what is currently protecting Canada from the subprime crisis which has gripped its great neighbor.
Recurrent crises could find a strategic solution in Africa. This great continent could absorb the surplus of speculative funds which has been largely responsible for recent inflation, as seen in rapidly rising prices for oil and agricultural produce. Those price rises have brought with them a more general inflation spreading to the countries of the South. Rich in human and natural resources alike, Africa could develop along the lines of the US's own development in the 19th century, and could open up to private capital and science. But for that we would need to have economic control within the context of a continent-wide organization, in the form of a United States of Africa.
Africa should start preparing now for role it will imminently be called upon to play as the last frontier of world development. That is the bouquet I offer to President Barack Obama. Like any bouquet, it may contain a thorn. If so, we can remove the thorn, and the bouquet will still be as beautiful.
It is in that spirit that I would like in fact to address all the world's leaders with a bouquet of proposals for the US president-elect:
In my view, the world economy is in need of a form of leadership to take it in the direction of global development. In fixing the exchange rate at $35 per ounce of gold, the Bretton Woods agreement established a global economic order with the United States at its center. It emerged fairly quickly that, because of the relatively fixed quantity gold, the available amount of dollars was insufficient to supply the needs of rapidly-expanding world trade. Richard Nixon ended dollar-gold convertibility in 1970, thereby enabling the United States to issue an unlimited quantity of notes – in other words, to incur an unlimited quantity of debt. Nevertheless, the system was essential to international trade.
Following the decline in the dollar's value, which has eroded confidence in it as a currency, and the appearance of new forms of hard currency (notably the yen and the euro) which can play the role of international standard equally well, the system has been called into question, and the US is now being required to settle its debts. The problem appears insoluble unless we reinstate the dollar, this time without the link to gold, as the standard currency of the international monetary system.
This option – in my opinion wisest course if we are to avoid chaos – must be dependent on two conditions:
– The US must agree to subject itself to strict international monetary regulation, the terms of which are still to be defined;
– The developing countries must not be left to trail behind the system of world governance like the tail of a comet. We will make some proposals to that end.
Consequently I think that the dollar should be overvalued by international consensus, or at least by an agreement between nations with convertible hard currency who are willing to make certain sacrifices in order to get the world economy out of its current crisis. I am aware of the costs this would inflict on a number of countries, including those in the eurozone, but to a certain extent this overvaluation would simply be an anticipation of the inevitable decline of the euro. To avoid increasing the dollar burden on debtor countries, the volume of debts of governments and businesses would have to be correspondingly reduced. The difference would thus reduce inflation and, better yet, could be invested in development.
The allocation by quota of Special Drawing Rights (SDRs), which comprise the capital of the IMF, should be maintained, but not in proportion to the wealth of member states. It should take into account the inequality between North and South and, for example, allocate half or two thirds to the wealthy countries and the remainder to the Third World. This would improve the Third World's lot accordingly. I therefore propose a specific SDR for Africa which would be used exclusively to finance infrastructure, education, health, and information and communications technologies. Africa would take responsibility itself for all other sectors, primarily by opening itself up to foreign capital and by promoting co-operation between the public and private sectors.
One of the causes of the current financial crisis, as has been seen in the US with the collapse of Lehman Brothers and in France with the problems at Crédit Lyonnaise and Société Générale, is the lack of transparency in inter-bank transactions. The principle of customer confidentiality in banking is sacrosanct, but by means of a digital solution it could be combined with transparency too. Banks could be required to record large inter-bank transactions according to the nations involved, using source codes to designate global data and make them accessible to the public, without violating confidentiality.
Suspending the world's stock markets for a period of eight days could soothe tensions and prevent the amplification of financial instability by psychological factors.
It is certainly a good policy to extend assistance to the banks, but I also suggest that the American government should help the house-buyers who have fallen victim to the practice of subprime lending and borrowed sums far beyond the value of their assets. The government could fix the maximum debt of mortgage borrowers at 70% of their property's market value, and pay the creditors the difference. That would constitute an additional form of aid to the banks. This kind of limitation on household debt is what is currently protecting Canada from the subprime crisis which has gripped its great neighbor.
Recurrent crises could find a strategic solution in Africa. This great continent could absorb the surplus of speculative funds which has been largely responsible for recent inflation, as seen in rapidly rising prices for oil and agricultural produce. Those price rises have brought with them a more general inflation spreading to the countries of the South. Rich in human and natural resources alike, Africa could develop along the lines of the US's own development in the 19th century, and could open up to private capital and science. But for that we would need to have economic control within the context of a continent-wide organization, in the form of a United States of Africa.
Africa should start preparing now for role it will imminently be called upon to play as the last frontier of world development. That is the bouquet I offer to President Barack Obama. Like any bouquet, it may contain a thorn. If so, we can remove the thorn, and the bouquet will still be as beautiful.