Sjeltur

When the economic and financial crisis surfaced last year, politicians around the world gave the impression they were surprised this crisis came, and some even claimed that nobody saw it coming… In reality several economists did see it coming, like the people from LEAP 2020, a European thinktank studying global economics and politics. They had no doubt this crisis would come eventually, and in February 2008 they predicted the crisis would be visible for everybody in September that year. They were right on the money.

The thinktank is very worried how this crisis unfolds, and yesterday they published an open letter in the Financial Times to the leaders of the G20. The next summit of the G20 will be held in London next month. LEAP 2020 has three recommendations for the leaders of the G20, and they feel this upcoming summit is the last chance to curb the crisis on an international level. According to LEAP 2020, if this summit fails there will be a high risk of a geopolitical dislocation, threatening the political stability of large entities like the US, China, Russia and the European Union.

The recommendations are that the International Monetary Fund (IMF) presents an independent assessment of the three major financial systems at the heart of the crisis, this involves the US, UK and Switzerland. The second recommendation is setting up a control scheme for banks by the governments to prevent a new episode of mayhem that pushes the global financial system to the brink, like we saw last year.

But the most important recommendation is a simple one, abandon the US dollar and create a new international reserve currency. LEAP 2020 thinks the dollar is a huge threat to the stability of the global financial system, and if the world continues to use the dollar as its reserve currency, the financial system will collapse. Last year the world was already very close to this point, now the economic circumstances are far worse and another escape from a complete meltdown is not very likely.

It’s interesting to see that LEAP 2020 comes with these recommendations the same time China is expressing their worries about the stability of the dollar and thinks out loud about replacing the dollar as the world reserve currency. Will China push for this at the summit, or will they continue to try to get rid of their dollars first, before pulling the plug on the US currency? China holds a large amount of dollars, and the purchasing power of these dollars will go down considerably if a new world reserve currency is adopted.

On the other hand, a further deepening of the crisis will have an impact domestically. The Chinese government fears civil unrest, they certainly don’t want a repeat of the Tiananmen Square protests of 1989. The communist regime used brute force to crackdown the protests almost 20 years ago, but it’s likely that a new wave of protests will be much larger. The regime probably feels their chances of successfully beating down massive protests are much smaller this time, and the survival of the regime itself might be at stake.