An article by Jean-François Serval in Le Monde.fr

Le Monde 28/03/2024
"Given the technological developments in the financial markets, it seems logical that a digital currency should become the universal standard..

Drawing a link between the public deficit and the trade deficit, Jean-François Serval, a chartered accountant, writes in an article for "Le Monde" that monetary adjustment must be at the heart of debt issues in order to guarantee everyone's interests.

 When the Chairman of the Federal Reserve (Fed, the US central bank) sounds the alarm about the drifting US budget deficit, the warning must be taken seriously. "Debt is growing faster than the economy, so it is unsustainable".In his statement on 5 February, Jerome Powell noted that the Fed's rate hike had not dented US growth, which was still supported by an overabundance of liquidity and the positive trend in the dollar against a backdrop of international tension.

More than the growth in debt per se, it is the disconnect between the expansion of the money supply and the needs of trade that the central banker is highlighting. The primary challenge facing the global economy is the relationship between production and money. This must lead us to think in terms of their interactions, which change the traditional perception of the evolution of the money supply and public spending.

The financial imbalances of a globalised world are out of control, and there is no real sign of a response to the debt trap that is closing in on fragile economies. An accidental setback, linked to political or economic events, could precipitate the collapse of a monetary system in chronic imbalance, held together only by abundant liquidity fuelled by lax fiscal policies that keep the machine in motion.

France ranked among the five most indebted nationswith public spending currently peaking at 57.3 % of gross domestic product (GDP), is at the heart of this financial challenge. How can we regain control of the budgetary drift?

Currency parity adjustment

Given the sums of money involved, it is essential to reducing public spending is not enough to bring the situation back under control. In a globalised economy, trade imbalances are at the heart of the problem of deficits. The issue of trade is automatically linked to the issue of exchange rates. Without a better balance between trade, there can be no return to a relative balance between creditor and debtor countries.

The effort to reduce public spending must also include an adjustment of currency parities to revitalise the productive capacities of the most indebted countries. This reconfiguration of parities primarily concerns trade in manufactured goods between the United States and China, but also, to a lesser extent, the eurozone and the Middle Kingdom, not forgetting industrial dragons such as Japan and South Korea.

In practical terms, this means raising Chinese interest rates in order to increase Chinese factors of production and thereby mechanically rebalance trade by reducing supply. A rebalancing that can only be achieved over time, on the basis of a sustained momentum in future-oriented investments.

This readjustment of parities also aims to organise an exchange rate system with fixed, but adjustable, parities that take into account the needs and capacities of each country. These parities should be defined in relation to a new universal standard, necessary for measuring the solvency of national issuers, for settling international transactions and which could, in time, serve as a reserve value.

Reform of the international monetary system

A new anchor, therefore, that would generate a minimum of balance in international trade and stability and order in global exchange rate movements, in a context where the growing multipolarity of the world necessarily puts the omnipresence of the dollar into perspective.

If the greenback is no longer destined to play the role of reserve currency indefinitely, then it seems logical, given the technological developments on the financial markets, that a digital currency, defined by the major central banks, should become the universal standard that regulates this future monetary configuration. This would put an end to the open parenthesis in 1976 by the Jamaica agreements which have introduced a monetary system with no fixed benchmark, since abandoning the gold standard.

This new situation can only be envisaged within the framework of an agreement between the most developed nations, which determine the structure of trade in the world economy. Such a consensus would necessarily involve a conference aimed at reforming the international monetary system. This objective may seem utopian at a time of major confrontation between the two economic giants. These are not the times to be seeking consensus and sharing global leadership.

Yet economic competition and the arms race that goes with it are a danger to all peoples. However, at a time in history when the possibility of conflict between the dominant powers could become a doomsday scenario, is it not more reasonable and logical to put the economic interests of nations first, in order to overcome identity-based passions and build a new world order based on a search for balance in trade, which would involve the implementation of a new international monetary system? A world, for once, pacified by economic interest and the monetary instrument that goes with it, so to speak!