18 October 2019

Project Syndicate: The IMF should take over Libra

Former Greek finance minister Yanis Varoufakis writes that the authorities that are now strangling Libra should hand Libra, or its core concept, over to the IMF so that it can be used to reduce global trade imbalances and rebalance financial flows.

When Facebook CEO Mark Zuckerberg announced Libra amid great fanfare, the idea sounded interesting and innocuous.

To the extent that Libra would be backed by assets denominated in several currencies, a Libra token’s purchasing power in any given country would fluctuate a great deal more than the domestic currency. Libra would, in fact, resemble the IMF’s internal accounting unit, known as Special Drawing Rights (SDRs), which reflect a weighted average of the world’s leading currencies.

It is a good thing that Libra is unraveling, along with Zuckerberg’s dream of a private global payments monopoly. But we should not throw the technological baby out with the monopolistic bathwater. The trick is to entrust implementation of the idea to the IMF, on behalf of its member states, with a view to reinventing the international monetary system in a manner reflecting John Maynard Keynes’ rejected proposal at the 1944 Bretton Woods Conference for an International Clearing Union.

To bring about this new Bretton Woods, the IMF would issue a blockchain-based, Libra-like token – let’s call it the Kosmos – whose exchange rate with domestic currencies floats freely. People continue to use their domestic currency, but all cross-border trade and capital transfers are denominated in Kosmos and pass through their central bank’s account held at the IMF. Trade deficits and surpluses incur a trade-imbalance levy, while private financial institutions pay a fee in proportion to any surge of outward capital flows. These penalties accrue in a Kosmos-denominated IMF account that operates as a global sovereign wealth fund. Suddenly, all international transactions become frictionless and fully transparent, while small but significant penalties keep trade and capital imbalances in check and fund green investment and remedial North-South wealth redistribution.

Brilliant ideas that would be catastrophic in the hands of buccaneering privateers should be pressed into public service. That way, we can benefit from their ingenuity without falling prey to their designs.

Full article on Project Syndicate

© Project Syndicate