Options for Managing a Systemic Bank Crisis

The on-going financial crisis results not from a cyclical or managerial failure, but from a structural one: more than 96 other major banking crises occurred over the past 20 years, and these crashes have happened under very different regulatory systems and at different stages of economic development. So far, conventional solutions are being applied—nationalization of the problem assets (as in the original Paulson bailout) or nationalization of the banks (as in Europe). These solutions only deal with the symptoms and not the systemic cause of today’s banking crisis. Similarly, the financial re-regulation that will be on everybody’s political agenda will, at best, reduce the frequency of such crises, but not avoid their re-occurrence. Better solutions are urgently needed because the last breakdown of this magnitude, the Great Depression of the 1930s, ended up in a wave of fascism and World War II. In this paper, we describe a recent conceptual breakthrough—based on the functioning of balanced ecosystems— that shows that all complex systems, including our monetary and financial ones, become structurally unstable whenever efficiency is overemphasized at the expense of diversity, interconnectivity and the crucial resilience they provide. The surprising insight from a systemic perspective is that sustainable vitality involves diversifying the types of currencies and institutions and introducing new ones that are designed specifically to increase the availability of money in its prime function as a medium of exchange, rather than for savings or speculation. Additionally, these currencies are expressly designed to link unused resources with unmet needs within a community, region or country. These currencies are know as complementary because they do not replace the conventional national money, but rather, operate in parallel with it. We propose that a systemic understanding and technical solution are now available that would ensure that such crashes become a phenomenon of the past. The most effective way for governments to support such a strategy of a more diverse and sustainable monetary ecology would be to accept a well-designed, robust complementary currency in partial payment of taxes during a period when banks are not in a position to fully finance the real economy. The choice of a complementary currency reflects both a technical issue (robustness and resilience against fraud) and a political one (what type of programs are desirable to support). A good candidate for consideration would be a professionally run business-to-business (B2B) complementary currency based on the model of the WIR system. This currency has been successfully operational for 75 years in Switzerland, involving a quarter of all the businesses in that country. Formal econometric analysis has proven that the WIR acts as a significant counter-cyclical stabilizing factor that explains the proverbial long-standing stability of the Swiss economy

Options for Managing a Systemic Bank Crisis

The on-going financial crisis results not from a cyclical or managerial failure, but from a structural one: more than 96 other major banking crises occurred over the past 20 years, and these crashes have happened under very different regulatory systems and at different stages of economic development. So far, conventional solutions are being applied—nationalization of the problem assets (as in the original Paulson bailout) or nationalization of the banks (as in Europe). These solutions only deal with the symptoms and not the systemic cause of today’s banking crisis. Similarly, the financial re-regulation that will be on everybody’s political agenda will, at best, reduce the frequency of such crises, but not avoid their re-occurrence. Better solutions are urgently needed because the last breakdown of this magnitude, the Great Depression of the 1930s, ended up in a wave of fascism and World War II. In this paper, we describe a recent conceptual breakthrough—based on the functioning of balanced ecosystems— that shows that all complex systems, including our monetary and financial ones, become structurally unstable whenever efficiency is overemphasized at the expense of diversity, interconnectivity and the crucial resilience they provide. The surprising insight from a systemic perspective is that sustainable vitality involves diversifying the types of currencies and institutions and introducing new ones that are designed specifically to increase the availability of money in its prime function as a medium of exchange, rather than for savings or speculation. Additionally, these currencies are expressly designed to link unused resources with unmet needs within a community, region or country. These currencies are know as complementary because they do not replace the conventional national money, but rather, operate in parallel with it. We propose that a systemic understanding and technical solution are now available that would ensure that such crashes become a phenomenon of the past. The most effective way for governments to support such a strategy of a more diverse and sustainable monetary ecology would be to accept a well-designed, robust complementary currency in partial payment of taxes during a period when banks are not in a position to fully finance the real economy. The choice of a complementary currency reflects both a technical issue (robustness and resilience against fraud) and a political one (what type of programs are desirable to support). A good candidate for consideration would be a professionally run business-to-business (B2B) complementary currency based on the model of the WIR system. This currency has been successfully operational for 75 years in Switzerland, involving a quarter of all the businesses in that country. Formal econometric analysis has proven that the WIR acts as a significant counter-cyclical stabilizing factor that explains the proverbial long-standing stability of the Swiss economy

УСТОЙЧИВОСТЬ МИРОВОЙ ФИНАНСОВОЙ СИСТЕМЫ И ДИВЕРСИФИКАЦИЯ ВАЛЮТ

Fundamental laws govern all complex flow systems, including natural ecosystems, economic and financial systems. Natural ecosystems are practical examples of sustainability: enduring, vital, adaptive. The sustainability of any complex flow system can be measured with a single metric as emergent property of its structural diversity and interconnectivity; it requires a balance in emphasis between efficiency and resilience. The urgent message for economics from nature is that the monoculture of national currencies, justified on the basis of market efficiency, generates structural instability in our global financial system. Economic sustainability therefore requires differentiation in types of currencies, specifically through complementary currencies.Все сложные подвижные системы, в том числе природные экосистемы или экономические и финансовые системы, управляются фундаментальными законами. Природные экосистемы – это практические примеры длительной устойчивости (sustainability): они выдерживают проверку временем, приспосабливаются к изменениям, выживают. Длительную устойчивость любой сложной подвижной системы можно измерить количественно как функцию ее структурной диверсификации и внутренней взаимосвязанности; ей требуется соблюдение равновесия между эффективностью и гибкостью. Природа посылает экономике срочное сообщение о том, что монокультура национальных валют, оправданная с точки зрения рыночной эффективности, порождает структурную неустойчивость нашей глобальной финансовой системы, и поэтому обеспечение длительной экономической устойчивости требует диверсификации валют, в частности, через введение дополнительных ее типов

Şirketinizi enflasyona hazırlayın !

Bu makale Harvard Business Reiew, 1970 Eylül-Ekim sayısında > başlığıyla yayınlandı.Dışarda faaliyette bulunan şirketler karlarını enflasyondan korumak için yıllarca mücadele ettiler. Makale; bu koşullarda kullanılabilecek bir dizi statejiyi konu edinmekle, bunların birini geniş bir biçimde açıklamaktadır. Bu strateji, maliyetierin artması, hasısı atın azalmasını önlemek için şirket mamul karmasının düzenlenmesidir. Yazar; işletme yönetimi tarafından ele alınacak bu çeşit bir düzenlernede çeşitli değişkenlerden oluşan bir modeli açıklamaktadır. Bu medelin can alıcı noktası, şirketin «kişisel» enflasyon hızının tanımlanmasıdır. Modelden yararlanmak için, yönetim, şirketinin maliyetler, pazarlar, çeşitli ülkeler· enflasyon hızı farkı (İnflation differentials) üzerindeki denetimi genişletmek zorunda kalabilir

"Natural savings": a new microsavings product for inflationary environments how to save forests with savings for and by the poor?

Decentralized sustainable resource management in developing countries is important both from a poverty-reduction and an ecological viewpoint. At the same time, no financial instrument is available that enables small savings to be protected against the vagaries of monetary instabilities and inflation. This paper proposes a solution that would address all three issues simultaneously: an inflation-proof savings instrument, fully backed by the organic growth process of a local resource, which at the same time gives a market-based financial incentive to protect that natural resource. A specific example involving sustainable forestry plantations in the Third World is provided.SCOPUS: ar.jinfo:eu-repo/semantics/publishe

Options for Managing a Systemic Bank Crisis

The on-going financial crisis results not from a cyclical or managerial failure, but from a structural one: more than 96 other major banking crises occurred over the past 20 years, and these crashes have happened under very different regulatory systems and at different stages of economic development. So far, conventional solutions are being applied—nationalization of the problem assets (as in the original Paulson bailout) or nationalization of the banks (as in Europe). These solutions only deal with the symptoms and not the systemic cause of today’s banking crisis. Similarly, the financial re-regulation that will be on everybody’s political agenda will, at best, reduce the frequency of such crises, but not avoid their re-occurrence. Better solutions are urgently needed because the last breakdown of this magnitude, the Great Depression of the 1930s, ended up in a wave of fascism and World War II. In this paper, we describe a recent conceptual breakthrough—based on the functioning of balanced ecosystems— that shows that all complex systems, including our monetary and financial ones, become structurally unstable whenever efficiency is overemphasized at the expense of diversity, interconnectivity and the crucial resilience they provide. The surprising insight from a systemic perspective is that sustainable vitality involves diversifying the types of currencies and institutions and introducing new ones that are designed specifically to increase the availability of money in its prime function as a medium of exchange, rather than for savings or speculation. Additionally, these currencies are expressly designed to link unused resources with unmet needs within a community, region or country. These currencies are know as complementary because they do not replace the conventional national money, but rather, operate in parallel with it. We propose that a systemic understanding and technical solution are now available that would ensure that such crashes become a phenomenon of the past. The most effective way for governments to support such a strategy of a more diverse and sustainable monetary ecology would be to accept a well-designed, robust complementary currency in partial payment of taxes during a period when banks are not in a position to fully finance the real economy. The choice of a complementary currency reflects both a technical issue (robustness and resilience against fraud) and a political one (what type of programs are desirable to support). A good candidate for consideration would be a professionally run business-to-business (B2B) complementary currency based on the model of the WIR system. This currency has been successfully operational for 75 years in Switzerland, involving a quarter of all the businesses in that country. Formal econometric analysis has proven that the WIR acts as a significant counter-cyclical stabilizing factor that explains the proverbial long-standing stability of the Swiss economy