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Actually, IMF, Bretton Woods 3.0 Is Already Here

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Actually, IMF, Bretton Woods 3.0 Is Already Here

The following is a contributed article from a content partner of Benzinga

In October, the Managing Director of the IMF, Kristalina Georgieva, told a virtual audience in Washington DC that the impending global response to the coronavirus pandemic could mark the beginnings of “a new Bretton Woods moment.”

Georgieva was referencing the decision made by world leaders at the tail end of World War 2 in Bretton Woods, New Hampshire, to shift International Monetary Fund members away from the gold standard, and onto a global settlement network fueled by the US dollar.

Now, the IMF is calling for a ‘Bretton Woods 2.0’, yet another seismic change that may see the global economy underpinned by the IMF’s own reserve currency, the SDR (Special Drawing Right).

But with the emergence of blockchain technology, and in particular those projects which seek to reshape monetary policy under a decentralized and democratic framework, has this Bretton Woods 2.0 moment already been leapfrogged by its next logical iteration – Bretton Woods 3.0?

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Image source: Depositphotos 

Bretton Woods Moment Amid Coronavirus

“Policy decisions taken now in response to the COVID-19 crisis will shape the world economy for a long time,” said Managing Director Georgieva, in the IMF Development Committee’s written statement for October.

Those policy decisions will make up what Georgieva calls the ‘Long ascent for the global economy,’ which will seek to rebalance a global ledger that’s already been inflated by over $12 trillion worth of money-printing in response to the pandemic. As noted by the Managing Director, the world economy will be 4.4% smaller in the coming year due to lockdown measures, and it has already been stripped of $11 trillion worth of human productivity.

National debt in advanced economies is expected to equal 125% of GDP in the coming year, with emerging economies and low-income countries expected to reach 65% and 50% respectively. The IMF, along with the World Bank and the G20, continues to push for debt relief for its poorest members, exemplified by its support for the Debt Service Suspension Initiative.

Special Drawing Right (SDR)

As it stands, only central banks and a select few financial institutions are authorized to use the SDR, and its weighting in the international reserve fund basket stands at a mere 3%. One of the SDR’s main use cases today is the settlement of debt from one IMF nation state to another, yet according to notable economists, the SDR is still one of the most underutilized financial instruments in the world today – over 50 years after its creation.

The reasons for this are many-fold, but chief among them is a lack of trust in the newly created SDR, and an understandable tendency for nation states to hold reserve funds in foreign banknotes – specifically, the US dollar.

The lack of trust in the SDR that was witnessed in 1970 is still present today, and this could be the very reason why any attempt at a Bretton Woods 2.0 with the SDR at the helm is doomed to fail.

Enter Bretton Woods 3.0

Funnily enough, the problem of trust is one which Bitcoin creator Satoshi Nakamoto sought to resolve. He was successful in that endeavor; Bitcoin’s global ledger book cannot be altered by any one entity, and Nakamoto’s resolution of the double-spend problem effectively created a trustless foundation upon which the rest of the blockchain world began to build.

And build they did. Expanding upon the role of mere digital currency, projects like Sögur (SGR) threaten to usher in a ‘Bretton Woods 3.0’ – but not by issuing a top-down decree, as would be the case with the IMF.

Sögur’s SGR token is backed by the same basket of reserve currencies as the SDR, but that’s where the similarities end. Unlike the centrally-issued SDR, Sögur’s SGR is bought and sold via an automated smart contract, one which even manages to successfully cater for KYC (Know Your Customer) and AML (Anti-Money Laundering) laws.

The funds used to purchase SGR are held in reserve, ensuring that the token will always be redeemable – just like with the gold standard. What’s more, just as no one owns the world’s gold supply, neither does any one entity own Sögur. Decisions regarding Sögur’s protocol are voted on by its community of token holders, ensuring a democratic governance structure which spreads in a horizontal manner, instead of a vertical hierarchy.

The SDR has had 50 years to usher in the “next Bretton Woods moment” and we’re still waiting. The IMF could do worse than to cast its eye over the current generation of blockchain applications, some of which are already automating the jobs the traditional finance industry is still struggling to process.

 

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