A presentation held by Dr Armin Haas, Institute for Advanced Sustainability Studies, Potsdam, at the high level seminar "Towards a sustainable financial system" hosted by the Stockholm based think tank Global Challenge in cooperation with London School of Economics and The Swedish House of Finance on September 12th 2013.

1. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 1
Dr. Armin Haas,
with the collaboration of Prof. Carlo Jaeger and Prof. Klaus Töpfer
Institute for Advanced Sustainability Studies e.V. (IASS Potsdam)
Sustainability, Finance,
and a Proposal from China
Towards a Sustainable Financial System
Stockholm, September 12-13, 2013

2. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 2
A Sustainable Currency Order?
Countries issuing reserve currencies can find it
difficult to maintain the value of their currency
while providing liquidity to the world.
Examples of the US-Dollar history:
• Fighting US inflation in the 1980s
contributed to the Latin American debt crisis.
• Avoiding US deflation after the dotcom
bubble and 9/11 contributed to the 2007
global financial crisis.

3. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 3
A Shifting Global Landscape
• The rise of the BRIC states will change
weights in the international economic and
political landscape.

4. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 4
Currency Reserves
0
50
100
150
200
250
1998

5. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 5
Currency Reserves
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1998
2011

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A Shifting Global Landscape
• Many take the development towards a
multipolar system of nationally issued
reserve currencies for granted.
• A system based on more than one national
reserve currency may show disruptive
economic and political dynamics.

7. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 7
Celestial Mechanics

8. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 8
The 3-Body-Problem
Source: Daniel Piker, http://vimeo.com/11993047

9. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 9
The Reality of Postponing Risks
The present global monetary system is not
sustainable:
• It suffers from a key problem of our
civilization: the tendency to postpone risks
so that they are neglected in today’s
decisions.
• Attempts to simply stabilize the current
monetary system may lay the grounds for
even bigger crises in the future.

10. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 10
Keynes’ Vision
In the 1940s, Keynes envisioned a global
monetary system, which came with schemes
for
• Delivering sufficient liquidity for enabling
economic growth of all nation states;
• Keeping destabilizing macro-economic
imbalances in check.

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Keynes’ Vision
Keynes conceived the Bancor, an
international reserve currency:
• Basically, the Bancor was a fiat currency.
• In Keynes’ vision, it was used for
stabilizing commodity prices via
commodity buffer stocks.
• By stabilizing commodity prices, Keynes
aimed at macroeconomic stabilization.

12. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 12
Bretton Woods and Beyond
• The Bretton Woods conference established
the US-Dollar as world reserve
currency, and the IMF and the World Bank
as global financial institutions.
• In the late 1960s, Special Drawing Rights
were created as an alternative source of
international liquidity.
• Special Drawing Rights are options that
enable countries, if need arises, quick and
easy access to currency loans under
favorable conditions.

13. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 13
A Chinese Proposal
• Zhou Xiaochuan, the governor of the
Chinese central bank, made a remarkable
proposal:
• In the long term, he aims at an
international reserve currency with a
stable valuation benchmark.
• “The creation of an international currency
unit (…) is a bold initiative that requires
extraordinary political vision and courage.”

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Touching Stones to Cross the River
• In the short term, he proposes to
strengthen the role of Special Drawing
Rights as stepping-stones towards the
long-term goal.
• Developing IMF’s Special Drawing Rights
towards an international reserve currency
“should be a gradual process that yields
win-win results for all.”

15. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 15
Are we at a River Passage?
• Is it a promising idea to start where we are
and develop SDRs towards an international
reserve currency?

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Possible Stones in the River?
• A world government with the power to tax.
• Value backing.
• Paying interest rates.
• Reputation of issuing agency.

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The Palace and the Temple
• Historically, money was controlled by
“the warriors” or “the priests”.
• In our times, this translates into the
question of independence of central banks.
• IMF is controlled by governments.
• Would the BIS be a more promising
candidate for controlling an international
reserve currency than the IMF?

18. IASS Institute for Advanced Sustainability Studies – Dr. Armin Haas – September 2013 18
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