Open Letter to Christine Lagarde, Head of the IMF

Dear Mrs Lagarde,

I take the opportunity to highlight for your consideration both the reality we face, and nature of your leadership position. The reality we face is that stability is missing in many aspects of our global financial and monetary systems. The IMF was founded in the belief that globally coordinated policy was required in order to add stability to our financial and monetary systems. Lacking stability our current economic malaise will likely continue; what are the alternatives to stability and would it ever emerge through piecemeal action of individual countries?

In the period between the two World Wars, and right after World War II, there were great instabilities in currency exchange, inflation, and global trade. There were also, of course, significance imbalances between nations- imbalances of gold reserves, public sector debt, and trade balances. But it is not for us to decide how any of these should be rebalanced, as that is closer to a political argument than a monetary system argument.  

What we can argue for is stability. As you know, it is not any one particular exchange rate or price that causes issues in business and trade: it is the fact that either changes significantly over the duration of settlement of the contract that causes the issues.  

We have countries in turmoil due to a number of instabilities. Some are acute and some are chronic:

 – The slow gradual shift from a dollar dominated reserve system to what might become a duopoly (medium term, with the gain) and quite possible a legitimate basket of currencies (with a euro of some kind) long term

– The continued high levels of public sector debt that both crowd out private sector investment (via QE), and fails to generate the expected multipliers in terms of economic growth

 – Currency exchange rate changes shifting within a year to cause significant business pain, or government led rate changes that effectively seek to further one countries economic position over others appearing out of nowhere (Switzerland, China etc).

 – Tragically stalled productivity levels that do not seem to be working; hampered now by political arguments about education, opportunity, and skills shortages 

 – Global demographic challenges that continue to develop, that will continue to limit government ability to act 

 – Politically charged issues related to inequality that themselves have many pros and cons, neither are supremely convincing as to what should be done to ‘improve’ the situation, whatever ‘improve’ might mean

 – Numerous examples of political schism around the world whereby erstwhile leaders, of any persuasion, used to be able to ‘try and practice’ their monetary beliefs even if in the name of experimentation.

Taken together I see so many similarities to the periods between the two world wars and the period after World War Two. It is in this light that I call for you to step forward and call for a new Bretton Woods Accord. I don’t mean for you to call forth new organizations, such as the IMF or the World Bank, but to create a new collaborative consensus between the primary economies that make up the developed and developing world.

We need a new collaborative accord that will seek a couple of things:

 – Agreed alignment of exchange rates such that stability in support of global trade may once again establish itself for a time. This may or may not be achieved by using the SDR, but some kind of agreement is needed.

 – Agreed forgiveness and trade-down of debts, and debt moratorium. We need a vehicle to help governments align the balance of public sector debts since each country today is trying to outdo the other with programs like QE. Perhaps agreement on the kinds of investment needed to further growth can be established. Perhaps reciprocal public debts can be exchanged; even reciprocal trade balances could be leveraged here also.

Both the lack of debt forgiveness and exchange rate instability contributed significantly to the economic pain the world felt after World War One and World War Two. 

Such a collaborative forum would help two specific efforts that need support. Two are critical right now: prices and interest rates.

 – Deflationary tendencies are well established in many parts of the world and show little sign of change. Stagflation remains a possibility. Yet QE represents the single largest injection of ‘money’ into a global economy. Inflation is a monetary phenomenon, yet today we have the inverse. This will not persist. But how do we get ahead of the possible alternative outcome without coordinated policy?

 – The U.S. is toying with its first increase in interest rates for many years. Should it? What will this mean to the dollar, China, global trade? Should the U.S. do this in an uncoordinated manner? In the 1920’s the U.S. decided to follow a deflationary policy alone, and in so doing prevented the rest of the trading world from achieving their stated aim of ‘returning to gold’. If the U.S. does not align and collaborate this policy we may yet see another opportunity lost. 

At this time the IMF could act as the coordinating function to bring forth the worlds economic thinkers to explore and contemplate new models to help establish more effective long term stabilizers. So new thinking, exploration and collaboration may emerge.

It would be crucial that this discourse include China. I thought I would say that but I know you know this already. But for the record I wanted to be clear.

I suggest this course of action with a heavy heart. I am, by nature, a firm believer in free markets and the price mechanism. But I also understand that instability, and what seems to be increasing instability, is too much of a burden for any one nation to master. As such a new forum is required.

With sine stability established business leaders may again feel confident in their fellow trading partner and financial and monetary stability will then benefit us all.

I earnestly implore you to consider this proposal.

Your ever obedient servant,

Andrew White


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