The Ghost of Bancor

Abstract

Tommaso Padoa-Schioppa Louvain–la–Neuve, 25 February 2010 _________________________________________ 1. Summary. In this lecture I shall be addressing the monetary aspect of the present economic crisis. My argument can be summed up in the following few propositions. The deep causes of this crisis include the dollar policy and, in a broader sense, the monetary regime that has been in force in the world for almost 40 years. Like the Bretton Woods system, it is incapable of imparting an acceptable macro-economic discipline to the world's economy because, being devoid of collectively accepted anchors, it encourages the persistence of unsustainable dynamics which spawn increasingly serious crises. Triffin's criticism of an international monetary system based on an exclusively national monetary policy is still valid, although today it demands a broader formulation, capable of taking into account the exchange rate anarchy and a multiplicity of influential monetary policies. The issue of international monetary order is not being afforded due attention and it needs to be addressed. Paths of reform for the future are difficult to identify and even more difficult to pursue. That is precisely why it is urgent for the academic and scientific communities, and indeed for all of those who harbor concern for the future of the global economy, to explore them. So much for the summary. I shall now address my theme. We do not know what historians and economists are going to be saying in 50 years time about the new storm currently rocking our world, but that does not make it any the less urgent for us to understand the crisis today, because any action taken to govern and to overcome the current crisis demands a prior interpretation of the crisis, and its effectiveness will depend on that interpretation. So we have to start by trying to interpret it. 2. Unsustainability. In the following essay I shall be using the adjective 'unsustainable', which is commonly used by economists. As Herbert Stein once said, 'that which is unsustainable comes to an end'. In actual fact, there is no stringent and generally applicable notion of unsustainability – a fully fledged key to understanding the crisis that began in 2007 – comparable to that of, say, equilibrium. Unlike equilibrium, unsustainability is intrinsically dynamic by nature. A dynamic based on factors that do not allow it to last over time is unsustainable. Today, life on earth is itself an unsustainable dynamic. We might say that unsustainability is to dynamic what imbalance is to static. When an unsustainable process 'comes to an end', variations in price and quantity are of a magnitude and a drama incomparably greater than one sees in the healthy conduct of economic life on a daily basis. The 'end', the breaking point,