White Paper on All the Options for Managing a Systemic Bank Crisis

Compendio :

structural one. Part of the evidence for this assertion is that there have already been more than other major banking crises over the past 20 years, and that such crashes have happened even under very different regulatory systems as well as, at different stages of economic development.

Better solutions are urgently needed because the last time we faced a breakdown of this scope, the Great Depression of the 1930s, ended up in a wave of fascism, and World War II. So far, however, only conventional solutions are being applied – nationalization of the problem assets (as in the original Paulson bailout) or nationalization of the banks (as in Europe) – only deal with the symptoms, not the systemic cause of today’s banking crisis. Similarly, the financial reregulation that will be on everybody’s political agenda will, at best, reduce the frequency of such crises, but not avoid their re-occurrence.

The good news is that a systemic understanding and technical solution are now available that would ensure that such crashes become a phenomenon of the past. A recent conceptual breakthrough, that takes its evidence from balanced, structurally sound, and highly functioning eco-systems now proves 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.

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 arel not be in 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 businessto-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-stranding stability

of the Swiss economy.

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© B. Lietaer, October 2008

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