Tommaso Padoa-Schioppa
The Ghost of Bancor
Il Mulino, Bologna, 2016
The collection of essays by Tommaso Padoa-Schioppa, which has been recently published by Il Mulino, is entitled The Ghost of Bancor, in reference to his Robert Triffin Lecture given in Louvain-la-Neuve in 2010.
The lecture, which Tommaso had long been working on, is a basic key to understanding money and, in my view, completes the research on the institutional, political and economic foundations of money, a fundamental point of reference of which is the essay “Le probleme monétaire et le probleme politique européen” published by Mario Albertini in N. 3 of Le Federaliste in 1972. In fact, the emergence of flat money, which replaced commodity money – the most common expression of which is gold –, is closely linked to the emergence of the modern state.
In 1944 at Bretton Woods, the need to base international currency on trust as well clearly emerged, but Keynes’s proposal to create the “bancor” – despite resorting to the artifice of referring to gold by the name – could not be implemented and the new international system continued to be based on one national currency, the US dollar, albeit pegged to gold.
As lucidly predicted by Robert Triffin with his “dilemma”, the system could not work in the long run and, in fact, in 1971 President Nixon declared the inconvertibility of the dollar into gold, making the dollar a currency whose confidence depended solely on the choices of American citizens and not on those of other states’ citizens as well, who also had to use that currency to regulate international trade.
However, the creation of the euro – which took place in 1999 following a long process beginning with the Werner Report not surprisingly in the 1970s – marked the start of a phase in which two competing currencies for international use were made available to the world economy and, in fact, the value of the euro in global reserves soon became significant by reaching one third of the world total.
At Bretton Woods, Keynes proposed the bancor because he had realised that the British pound could no longer play an international role. To euro promoters – primarily Padoa-Schioppa – it was clear that the role of the euro was not to replace the dollar and that it was necessary to move towards a global flat currency. In fact, the presence of more internationally used currencies would sooner or later require it, something which had also and not surprisingly been envisaged in the 1970 International Monetary Fund reform with the creation of the SDR – the Special Drawing Right consisting of internationally used currencies.
A two-currency system cannot, in fact, work in the long term, as demonstrated in particular by the end of bimetallism, attempted during the 19th century with gold and silver, with gold turning out to be the final victor. With the 2007 financial crisis, an attempt was made to revert to the dollar’s monopoly by eliminating the euro, or at least its international credibility.
The euro, like silver, cannot survive as an alternative to the dollar but with Keynes’ same wisdom at Bretton Woods, Europeans must be guided back to the hypothesis of the bancor, whose ghost – as the title of the book suggests – has come back.
In his lecture, Padoa-Schioppa observes that after being murdered more than seventy years ago at Bretton Woods, the bancor has returned to claim the throne that had been usurped by the dollar.
Padoa Schioppa recalls that in Macbeth Banquo was not the one to ascend to the throne, but rather it was his descendants, the Stuarts, who were to govern the three United Kingdoms of Scotland, England and Ireland because – according to Shakespearian critics – he was in favour of a union based on justice and balance, what economists today would call a symmetrical system.
President Obama, aware of the new world balance, defended the euro when it was under attack and, after a long battle, managed to get the US Congress to ratify the reform of the IMF quotas in a more balanced way. Today the top ten quota-holders of the Fund include countries such as China, India, Russia and Brazil.
The US representative on the IMF Executive Board then voted in favour of including the Chinese currency “renminbi” among the international currencies that make up the Special Drawing Right, i.e. the SDR.
The bancor is back with a mysterious name but to its heirs, the Multicurrency Reserve System, the core of which should be the SDR, is clearly the road to follow.
A Message for Peace from the Thirties
Michel Herland
Lord Lothian (Philip H. Kerr)
Le Pacifisme ne suffit pas, le patriotisme non plus et autres textes (1922-1943)
Presse Fédéraliste, Lyon, 2016, p. 280
Edited by J.-F. Billion and J.-L. Prevel
The link between Philip Henry Kerr (become Lord Lothian in 1933) and Altiero Spinelli is tenuous, but there is one. Spinelli and Rossi discovered federalism in the early forties in articles by Luigi Einaudi, the future President of the Italian Republic from 1948 to 1955 and father of the publisher with the same name, published twenty years earlier. Solicited by Rossi, Einaudi sent to the confined man “two or three booklets of the English federalist literature which had developed towards the end of the thirties under the impulse of Lord Lothian”[i].
Ph. Kerr had discovered federalism in South Africa, while, as a young civil servant with the High Commissioner, he was tasked to imagine the future institutions of that Crown colony. Before the First World War, he militated in favor of the federal organization of the British Empire, foreshadowing in his mind a world federation. During the First World War, he became the private secretary of the Liberal Prime Minister Lloyd George, with special responsibilities in imperial and foreign affairs. He participated in this capacity in the Paris Conference, the prelude to the Treaty of Versailles. Like Keynes[ii], he was convinced that the conditions imposed on Germany did not lay the foundations for future peace. In his most famous text, which gives the title to the book examined here, Pacifism is not Enough (nor Patriotism Either) (1935), he distinguished peace as a mere negative state, the absence of war, from peace as a positive fact, when war is banished, because disputes are regulated by the law (p. 140[iii]). To eliminate war, there is only one solution: joining together rival nations into a federation, starting with Europe.
Institutions such as the League of Nations are in practice powerless, because they are based on “the principle of the complete sovereignty of member states” (p. 162). In the same text, he warned that a new conflict was already in the bud in the rearmament of Germany and that, through the system of alliances, it will inevitably degenerate into a new world war.
“The federation – he wrote at the time – is the only lasting method of unity and peace, because it preserves those elements of freedom and justice which are the principle of vitality and growth; although it is much more difficult to accomplish [than an empire], because of the obstacles of race, language, culture and history” (p. 189).
In 1935, the author hardly believed that a European Federation was at all possible in the immediate future. He thought, instead, that it was time to prepare, for the post-war period, a solution which would actually bring peace (p. 190). But if the goal is clear, it will only be reached through a “spiritual movement”: “A sufficient degree of spiritual and moral unity must become a reality before a sustainable federal community can be born, because a premature union may collapse into secession or civil war” (p. 192).
By what cruel irony of destiny must it be that England, the fatherland of Lord Lothian, is the one that gives Europe today the shake of dismemberment!
Translated by Lionello Casalegno
[i] Lucio Levi in A. Spinelli, Le Manifeste de Ventotene et autres textes (1941-1947), Presse fédéraliste, Lyon, 2017, p. 70.
[ii] John Maynard Keynes, The Economic Consequences of the Peace, 1919; see also an analysis in Michel Herland, Keynes et la macroéconomie, Paris, Economica, 1991, p. 27-33.
[iii] From the collection of texts of Lord Lothian.