President Xi Jinping proposed the Belt and Road Initiative 10 years ago. Since then, he has made several other initiatives, including the Global Development Initiative, the Global Security Initiative, and the latest Global Civilization Initiative.
All this, simply put, reflects President Xi’s commitment to globalism, which is the view that we all live on Spaceship Earth, and, like it or not, we are a community of a shared destiny or a shared future. This enlightened view is not “a political slogan used by the Chinese Communist Party to describe a stated foreign-policy goal of the People’s Republic of China”, as Wikipedia claims. It is just a statement of fact.
The United Nations proposed the Sustainable Development Goals in 2015 as “a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity”. Sustainable development means survival; unsustainable development means doom. Will anyone dispute this? Can anyone?
We now live in the 21st century. We should have learned from history that the world cannot survive if countries act unilaterally seeking to expand their own “best interest” based on brute force, technological clout, and exploitation of weaker countries. We need to manage our “earthly (global) affairs” scientifically, pragmatically and responsibly.
The United States, the leading superpower on Earth, is facing a crisis, and that is because it has not exercised fiscal prudence. While the US Congress will certainly agree to raising the debt limit as it has done before in order for the US to borrow more and thus avoid a default, there is a sense that this cannot go on forever. With the federal debt already at $31.4 trillion and still rising, the US is able to make ends meet only by issuing more Treasury bonds. So far, the US can do this because it can borrow at extremely low interest rates, and that is because the US dollar enjoys the unique status as the world’s most popular international means of settlement. US Treasury bonds are considered the world’s most liquid asset and the preferred asset during economic crises.
Many commentators argue that there is no other currency on the horizon that can replace the super dollar. They are right. But that is because no other country has issued so much debt as the US. Paradoxically, the US’ secular fiscal deficits had contributed to the special status of the US dollar.
However, this “international monetary architecture” is both unfair and unsustainable. Unfair because it allows the Fed to print money and the US can run huge trade deficits and fiscal deficits with little worry, since the interest the US pays on money owed to others is much lower than the interest that other countries need to pay if they need to borrow from the US. The US every year runs a surplus in its international income accounts.
However, geopolitics and the misuse of the US dollar by Washington are causing a flight from the US dollar. There is little doubt that the US has to pay a higher interest rate on its borrowings. Moreover, the world needs to be fairer and more inclusive. Above all, the unipolar world symbolized by the supremacy of the US dollar is not sustainable. All countries need to act responsibly, and there cannot be US exceptionalism.
In order to build a fairer world, one that is based on equality, responsibility and true multilateralism, I have proposed introducing an international unit of account that is based on a basket of the world’s major currencies plus currencies of key commodity producers. I will not detail the technical details here. Suffice to say that under the proposed currency basket, each currency in the basket is GDP-weighted. When each currency in the basket is indexed against inflation, we will have an indexed international unit of account that represents a unit of real global purchasing power. I had called it the World Currency Unit (WCU) in my published papers.
While not one country other than the US has issued so much debt that is denominated in a sovereign currency, all governments as well as private borrowers can issue bonds in the WCU. The global pool of WCU-denominated debt will be big enough to serve as a substitute reserve asset in place of US Treasury bonds. I have proposed that holders of WCU-denominated bonds have the right to redeem their holdings in any currency desired according to the prevailing price of the WCU in the preferred currency.
As my article last week maintained, the BRI is a global public good that China has brought to the world. A fairer international monetary architecture is also a global public good. I strongly propose that as an innovative international financial center, Hong Kong could spearhead the reform of the international monetary architecture by pushing through the idea of an international unit of account. Under this new international monetary architecture, neither the renminbi nor any other currency will become another “super currency”. Not only bonds can be denominated in the WCU, but commodity prices can also be quoted in the WCU. Because the WCU is indexed against inflation, information about the real prices of the traded commodities will be immediately transparent, improving efficiency. This would help stem speculation and contribute to a more stable global economy.
The author is director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.