Monday 29 December 2014

The Engineering of Global Public Goods



No analysis of the current macroeconomic and geopolitical situation in the world can be thoroughly complete without considering the role of Global Public Goods, or GPG.  In contrast, private goods are considered to be produce, bread, televisions, etc.., items that are purchased individually for the enjoyment and consumption of the individual solely.
As opposed to Global Public Goods, there are “local” public goods, such as police departments, health services, fire and hazardous response departments, and public utilities, such as water, electricity, and natural gas.  An argument can be made for the determination of “national” public goods, such as the RCMP here in Canada, or the FBI in America, and even the national banking sector as represented by each nations central bank.
The concept of Global Public Goods are trans-border and supra-sovereign in nature, and require international engagement and consensus on matters such as the following:
1. Environmental Commons, which we see manifested as the climate change conditioning of mass populations around the world.
2. Communicable Diseases, as represented by the yearly flu vaccination programs, Ebola propaganda, and numerous other vaccination programs in both developed countries and undeveloped countries.
3. International Trade, a broader process which is being developed through international and regional trade agreements.
4. International Financial Architecture, the item which we have been following closely here in the form of IMF Reform and SDR bond liquidity, moving away from the USD unipolar system.
5. Global Knowledge of Development, the purpose of which is to expand infrastructure projects internationally to ensure balance in local and regional public goods.
It immediately comes clear that the implementation of a multi-polar financial system is only one of many components of a larger consolidation and centralization of Global Public Goods, from which an international empire structure can emerge in the coming years.
As a part of the larger CSI, Cultural and Socioeconomic Interception, the financial crisis of 2007 and leading into 2008 can be considered a masterfully crafted reorganization and redefinition of the international financial architecture which has endured since the creation of the Bretton Woods Institutions in 1944.  After the crisis hit the validity and sustainability of the system came into question.
Leading up to this shift in international awareness the emerging economies had been engorged with the manufacturing which came from the imbalances in multiple trade agreements with the developed countries.  This economic growth for countries such as China have allowed the emerging economies to become much more vocal and demanding of reforming the Bretton Woods institutions, such as the International Monetary Fund.
One of these demands was realized by the end of 2008, as international financial mandates shifted from the responsibility of the G7 to the responsibility of the G20, which included a broader representation of the emerging economies.
From there the much discussed IMF 2010 Reforms were agreed upon by all participating countries and have since stalled out as the US Congress has failed to ratify them.  Whether the reforms did enough, or required additional and deeper changes to the quota and governance structure of the IMF are all but irrelevant at this point, as it appears aPlan B initiative will be forthcoming in the new year from the G20 and IMF, an initiative which will remove the US veto on the Executive Board and increase the quota amounts of the emerging economies even more then what was agreed upon originally.
One matter of interest in the 2010 Reforms is the restoration of Russian representation and quota shares, which would see an increase for the resource rich country back to 2.71% from 2.49%.  Though this may appear inconsequential on the surface, when we consider that the Russian ruble was the 18th most used currency in the world, (as of September, 2014) out of 150 currencies in the world, and that demand has increased for the ruble to act as a regional reserve currency throughout Eastern Europe, Central Asia, and the Caucasus, the geopolitical strategies playing out in Ukraine become much clearer.
Russia, as one of the most resource rich regions on Earth, with additional claims on resources in the Arctic, is positioned to play a major role in the International Trade and Infrastructure Development components of the Global Public Goods strategy. This will become clearer as the internationalization of what is presently local public goods, such as water and natural gas, become centralized under the mandates of Global Public Goods.
What we are witnessing in the world today is the positioning of assets and preparation of strategies for the rebalancing of economic and geopolitical power.  This rebalancing requires a clearer and multilateral definition of GPG and how the global monetary system can be engineered to support and defend the regulations and mandates which are sure to come in the preceding years.  Much of which will be based on the resources of Russia, Canada, Australia, and other resource rich regions.
The International Financial Architecture component of the GPG strategies require a clear set of economic segments and conditions which have been defined by the G20.  They are:
1. Bring stability to the global financial system.
2. Redefining the mandates of monetary policy, such as securing domestic economic performance while stabilizing capital flows across borders.
3. The goal of long-term financial sustainability, while transitioning away from short term economic stimuli, such as Quantitative Easing.
4.  Maintaining an open global policy framework, while encouraging anti-protectionist strategies.  The American failure to enact the 2010 IMF Reforms can be considered a protectionist strategy.
5. And most importantly, the restructuring of the Bretton Woods institutions.
It is important to reiterate once again that the BRICS Development Bank and the Contingency Reserve Arrangement are not meant to replace the Bretton Wood institutions, but to support the reform of those institutions, as covered in the posts The SDR Purpose of BRICS and USD Needs Yuan in the SDR Basket.
The G20 planning will require consistent and efficient coordination on macroeconomic policies in order to define and clarify the monetary policies which will fulfill the financial segments of the Global Public Goods.
America, for its part, has a financial framework and monetary policy that is extremely interwoven within the larger international framework, which includes the emerging economies.  A continuation of protectionist policies and strategies will not last, as infrastructure project funding in the future will come from the same source of international liquidity as the multilateral architecture.
There is an existing multilateral framework which has already been defined and is in the process of being implemented.  This framework includes monetary policy regarding exchange rates, and infrastructure funding sourced from foundations established to direct capital from historical sovereign debts.
Another important area of transition is in the operating structure and policy framework of central banks. At some point in the near future the globalization of central banks will be apparent as the management of these institutions become the responsibility of the more macro architecture of the Global Public Goods.
The year 2015 will be one of transition.  – JC


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