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We need a Bretton Woods for the digital age

The author is a former member of the U.S. Congress and was chairman of the Permanent Elected Committee of the House of Representatives for Intelligence, 2011-15

In 1944, Allied states met in Burton Woods and established post-war economic rules. These will provide much needed stability and structure. But as economies grew and financial ties grew, governments eventually needed greater freedom of action. The decision by the Nixon administration in 1971 to remove the dollar from the gold standard was a major motive for the decline of the so-called Burton Woods system.

Today, we find ourselves in the midst of a global ideological conflict between liberal democracy and authoritarianism. Friendly democracies need, once again, to unite to establish a new economic agreement – one based on the liberal values ​​of free trade, competition and freedom. Think of it as Burton Woods Digital to ensure continued growth and progress. Failure to reach such an agreement risks jeopardizing the future of global economic governance for China and its model of authoritarian capitalism.

China’s pursuit of digital currency – the digital renminbi, or e-CNY – is just one example of Beijing’s goals. The development of the e-CNY is covered in the language of innovation, but hides potentially undesirable results. Locally, this would allow Beijing unparalleled supervision and control over financial transactions. Western companies in China will no doubt be subject to intrusive supervision and risk potential disruption if Beijing finds that their (or their country’s) behavior is unacceptable.

Internationally, the e-CNY will undermine the role of the dollar as a reserve currency. This is the goal of the Chinese Communist Party. As a state-owned bank manager told the Financial Times last year: “Our bigger goal is to undermine the dominance of the US dollar in the international trade arrangement.”

There are many around the world who would say that this is an attractive development – undermining the dependence on the dollar will reduce America’s global impact and its ability to impose sanctions. However this action will put instability into Global economy At a time when self-confidence is needed more than ever.

While China has sought to postpone its time and hide its capabilities, it is now embarking on an effort to re-establish global institutions in a way that favors its values ​​and approach. The e-CNY represents Beijing’s overall push to redefine the global economy and its financial rules.

China’s efforts in a variety of international forums follow a pattern in which Beijing participates in the process, promoting policies that are in the long run and not necessarily in favor of the global economy. While involved both in the process and in the institutions, China is undermining international norms by provoking diplomatically inspired trade disputes, such as Conflict with Australia On caps on barley imports and dumping of goods on the market. When the International Monetary Fund allowed Renminbi to become a reserve currency in 2016, the urge to remove the dollar from its place began.

The devaluation of Beijing Bernminby in the previous year gave Chinese companies an unfair market advantage, reduced the cost of their exports to America and accelerated the existing trade deficits against the US and the EU.

However, the need for a new Burton Woods led by the world’s liberal democracies is not entirely related to China. The advent of fintech, cryptocurrencies, and other new financial instruments adds a new complexity to an already very fluid global economy — one for which existing policy structures have not been designed.

The speed with which new financial instruments are emerging will continue to surpass our ability to regulate them in real time. It requires a new set of rules to guide international cooperation and help compete in these new economic spaces.

The goal of Burton Woods Digital will not be to restrict financial innovation or limit the ability of individual governments to operate. Nation states must maintain the ability to conduct their economic and fiscal policies. Instead, it is about creating a system of norms founded on liberal democratic values, which will facilitate the next development of the world economy, while at the same time protecting the principles that gave birth to the modern world.

A future world economic order, and the rules that govern it, must be based on liberal democratic values ​​such as privacy and competition, and not on those of an authoritarian regime with hegemonic aspirations. We do not need a global conflict to understand what is at stake.

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