Please, Not Another IMF

Copying a Bad Idea

Why is there an IMF? It seems a good question, so here is the short answer: in the post gold standard world, central bank-supported fractional reserve banking has enabled the emergence of such huge credit booms, that governments frequently get into severe trouble when a boom collapses and their countries’ current account deficits are suddenly no longer funded by foreign investors. Then they feel forced to go hat in hand to the IMF.

It should be obvious that the solution to the problem is not to let a tax payer funded bureaucracy treat the symptoms, but to strike at the root by returning to a sound monetary system. The only truly sound monetary system would be a market-based one. By adopting such a system, one could do away with a great many bureaucracies and regulations in one fell swoop.

Note in this context that today’s popular views on the gold standard – or rather, the views that are promoted by all those with a stake in the current system – are entirely wrong. Not one of the canards brought up against it has any merit (we’re thinking of a few often used lines like ‘there is not enough gold’, or ‘we would not have the flexibility that is needed for central banks to steer the economy’ and similar nonsense).

Even the historical account regurgitated over and over again is completely distorted. The gold standard never ‘failed’. It was deliberately undermined and sabotaged by governments in order to finance the waging of war. Once this was done, they kept at it because they wanted to have unrestrained spending at their disposal at all times.

The IMF is a kind of ugly afterbirth of the whole sordid process. We are saddled with fiat monies today, the adoption of which has imposed enormous costs on society, not only in terms of lost material wealth and progress, but also in terms of lost freedoms.

The reason why we bring all of this up is that the so-called ‘BRICS’ (Brazil, Russia, India, China and South Africa) want to set up ‘their own IMF’.  In addition they want to install their own version of the World Bank, a mini-imperialistic venture if you will.

 

“The BRICS countries (Brazil, Russia, India, China and South Africa) have made significant progress in setting up structures that would serve as an alternative to the International Monetary Fund and the World Bank, which are dominated by the U.S. and the EU. A currency reserve pool, as a replacement for the IMF, and a BRICS development bank, as a replacement for the World Bank, will begin operating as soon as in 2015, Russian Ambassador at Large Vadim Lukov has said.

Brazil has already drafted a charter for the BRICS Development Bank, while Russia is drawing up intergovernmental agreements on setting the bank up, he added.

In addition, the BRICS countries have already agreed on the amount of authorized capital for the new institutions: $100 billion each. “Talks are under way on the distribution of the initial capital of $50 billion between the partners and on the location for the headquarters of the bank. Each of the BRICS countries has expressed a considerable interest in having the headquarters on its territory,” Lukov said.

It is expected that contributions to the currency reserve pool will be as follows: China, $41 billion; Brazil, India, and Russia, $18 billion each; and South Africa, $5 billion. The amount of the contributions reflects the size of the countries’ economies.
[…]

The BRICS countries are setting up a Development Bank as an alternative to the World Bank in order to grant loans for projects that are beneficial not for the U.S. or the EU, but for developing countries.

The purpose of the bank is to primarily finance external rather than internal projects. The founding countries believe that they are quite capable of developing their own projects themselves. For instance, Russia has a National Wealth Fund for this purpose.

“Loans from the Development Bank will be aimed not so much at the BRICS countries as for investment in infrastructure projects in other countries, say, in Africa,” says Ilya Prilepsky, a member of the Economic Expert Group. “For example, it would be in BRICS’ interest to give a loan to an African country for a hydropower development program, where BRICS countries could supply their equipment or act as the main contractor.”

 

(emphasis added)

Good grief.

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