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THE ULTIMATE FIX: THE NEW INTERNATIONAL MONETARY ORDER

19 January, 2016 - 15:18

The quick fixes thus far attempted have not solved the perennial problem of the accumulations of huge international debts by the developing countries and most recently by the United States. In addition, the schemes devised thus far have not convinced the two main surplus countries, Japan and West Germany, to eliminate their surpluses by increasing their buying overseas. It appears, therefore, that there is a need for a drastic new approach to the international debt and liquidity problem.

In the past most experts believed that bringing the debt accumulated by the developing countries under control was the key to resolving the international monetary problem. Today there is a groundswell of opinion that unless the U.S. national and international debt is brought under control, all other schemes are doomed to fail.

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Figure 8.6 The Focus of the Baker Plan: Seventeen Heavily Indebted Countries 
 

There are two main schools of thought on developing a permanent solution. Both of these schools set as a necessary condition removing the U.S. dollar from its position as the only reserve currency. In its place, the "American school" recommends using an asset that is not a liability to any nation-gold. The "European school" proposes using as a reserve currency a new currency called DEY, which would be a combined/weighted average of the dollar, the European Currency Unit, and the yen.

The replacement of the dollar as a reserve currency with either gold or the DEY is only a necessary condition for solving the world debt crisis; it is by no means sufficient. Resolution of the crisis requires that the world's great powers make sure that their coorJinated policies stimulate economic growth and foster international trade. At the very least, they must refrain from trade wars.

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