During this month’s Spring Meetings in Washington DC, the IMF and World Bank held their annual Development Committee conference which looked at the economic outlook and potential risks for the global economy.
As is tradition, IMF head Christine Lagarde produced a written statement outlining several areas of priority. All of them were predicated on ‘reaching the 2030 Sustainable Development Goals‘. Whilst on paper the statement is geared towards emerging and developing countries, elements of it relate notably to western nations such as the United Kingdom, despite Britain being considered an advanced economy.
To explain, let’s first examine the stance taken on monetary policy:
In countries with elevated inflation or where exchange rate depreciations could trigger inflation pass-through, central banks should focus on containing inflation expectations (Angola, Argentina, Iran, Turkey). By contrast, monetary policy can be more accommodative where expectations are well anchored (Brazil, Indonesia).
In October 2018, a communique from the thirty-eighth meeting of the International Monetary and Financial Committee stated that where inflation was ‘close to or above target‘, central banks should tighten policy. On the opposite end of the scale, banks should ‘maintain monetary accommodation where inflation is below target‘.
As we have already seen since the 2016 EU referendum, the sustained fall in the value of sterling was according to the Bank of England ‘entirely‘ responsible for a subsequent spike in inflation. Doing what very few thought they would, the BOE raised interest rates in response – the first rise in over ten years. They then followed up with a second hike nine months later, with inflation remaining above the central bank’s mandate of 2%.
Today, inflation has fallen back to just below 2%. Little surprise then that there are no immediate signs of the BOE planning to raise rates for a third time in under two years. Leaving the EU without a withdrawal agreement could quickly see that change. As I have reasoned on several occasions, I believe further depreciation of the pound amidst a no deal scenario would likely see the BOE raise interest rates rather than cut them.
The statement goes on to mention that for central banks to combat exchange rate instability, they should fall back on their foreign exchange reserves. According to the IMF, such intervention ‘can be used to mitigate disorderly market conditions‘.
In the 21st century, this has yet to be tested in the UK. In a series of posts I published last month which discussed the possible demise of sterling as a reserve currency, I detailed how the Bank of England’s foreign currency holdings stand close to $150 billion. In the event of a run on the pound, it is these reserves which the bank could use to purchase sterling in an attempt to stave off a collapse. The last example of the BOE doing this was on Black Wednesday in 1992. Some $15 billion was spent on interventions, which at the time amounted to around half the bank’s currency reserves.
The IMF’s guidance on monetary policy and exchange rates are presented around policies in the ‘short term‘. The ‘medium to longer term‘ takes in a potentially much wider breadth of economic reforms.
As expressed by the Bank for International Settlements, short term plans for central banks are measured at one to three years, with the medium term at one to six years. We can therefore assume that plans beyond the medium term would stretch out to the ten year mark and beyond, bringing them into line with the United Nation’s Agenda 2030.
Two key aspects for the medium to longer term include fiscal policy and the rise of Fintech (Financial Technology). The IMF make it clear that ‘the 2030 Sustainable Development Goals cannot be achieved‘ without ‘robust and inclusive growth‘. This is a roundabout way of saying that widescale reforms of financial and ecological systems are necessary for globalists to fulfil the objectives mapped out by the UN.
Looking at fiscal policy first, the statement reads:
Fiscal policy needs to generate space for priority development spending, while at the same time preserving public debt sustainability. This requires tax policies and administrative reforms that broaden the tax base and enhance revenue collection, as well as prudent debt management. Increasing the efficiency of public spending is also needed, including in priority areas such as education, health, and infrastructure.
Back in 2017 I posted two articles that discussed the ‘normalisation‘ of monetary policy in the EU using speeches given by Bundesbank chairman and BIS director Jens Weidmann. The subject of national fiscal policies is one that Weidmann paid particular attention to. From his perspective, a future rise in interest rates would serve to place greater emphasis on the importance of ‘fiscal consolidation‘. Central bank intervention in the EU had, according to Weidmann, ‘blurred the boundary between monetary and fiscal policy‘.
A line that has often been spoken by central banks is that they cannot forever be ‘the only game in town‘. Weidmann’s ideal scenario would see member states relinquish their fiscal autonomy (and with it suffer further inroads into their national sovereignty) by handing control of their national finances over to a centralised authority under the directorship of the EU.
A fiscal union within the EU would represent a major advancement in the project for European integration. The first step towards the creation of the EU began in 1947 with the Paris agreement on multilateral payments. After multiple stages of centralisation spanning over forty years (for which the Bank for International Settlements played an instrumental part), 1992 saw the inception of the Maastricht Treaty which brought the EU into existence and in so doing established the Economic and Monetary Union. Six years later the European Central Bank was created, and four years on from that marked the introduction of the Euro. So far, though, a fiscal union that binds together national budgets has yet to be conceived.
Unsurprisingly, globalists continue to call for it. In 2018 the IMF published a paper detailing the case for a fiscal union in the Euro Area. This was followed by a short precis titled, ‘The Euro Area Needs a Fiscal Union.’
To summarise, without a fiscal union in place, the IMF’s position is that ‘the architecture supporting Europe’s currency union remains incomplete and leaves the region vulnerable to future financial crises.’ They outline the solution as consisting of a ‘common fiscal policy‘, brought to fruition in the name of preserving ‘financial and economic integration and stability‘ and ‘sharing fiscal risk‘.
One important aspect the precis highlights is that the 2010-12 Euro debt crisis (which globalists coined as a ‘sovereign‘ debt crisis) led to the creation of the European Stability Mechanism. The ESM is described as being an ‘international financial institution‘ that helps countries in major financial distress by providing them with emergency loans. It currently has the capacity to lend a total of €700 billion.
Once again this is another example of crisis leading to consolidation. The push for a fiscal union has intensified over the past few years. With public debt at record highs and stymied growth in the Euro Area, it is logical to conclude that the first steps of its introduction would coincide with major economic rupture in the EU. Crisis invariably breeds opportunity for globalists.
In the IMF’s words, a fully realised fiscal union would need ‘effective rules and institutions to contain it.’ They readily admit that for such rules to get off the ground would likely require ‘moving some decision-making power from the member states to the central level.’
The economic jeopardy caused by unsustainable levels of debt is a vehicle which globalists may attempt to utilise in a bid to gain full spectrum control over national budgets.
Along with efforts towards a fiscal union is the development of Financial Technology (Fintech). On this, the statement issued by the Development Committee reads:
Diversified financial systems increase resilience and facilitate access to financial services for small enterprises and lower-income households. Recent developments in Fintech hold both promise and risks in this regard.
Fintech relates directly to the rise of digital money through the use of cryptocurrencies and the future issuance of central bank digital currencies (CBDC’s). Over the past year I have written about how both the BIS and IMF have begun to openly question ‘money in the digital age‘, whilst central banks are in the midst of reforming national payment systems that will be compatible with distributed ledger technology (DLT).
To develop a clearer picture on Fintech, once again we can reference the IMF. At the beginning of April the institution held its second meeting of the IMF Fintech Roundtable Program. Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department, gave a speech to mark the occasion (Framing the Debate on Fintech: Current Trends and Continuing Policy Concerns).
In the speech, Adrian mentions the correlation between the reform of payment systems and the use of DLT:
Recent developments in retail payments systems suggest a move toward real-time settlements, flatter structures, continuous operations, and global reach. Coinciding with these developments, an increasing number of countries are experimenting with, or researching, Distributed Ledger Technologies (DLT) for use in financial market infrastructures, although few countries have carried out pilot projects.
We also learn from the speech that the Eastern Caribbean Central Bank and the Central Bank of the Bahamas are in the advanced stages of carrying out ‘blockchain-based CBDC pilots‘. The Riksbank of Sweden, a country that is rapidly becoming cashless, is also advancing plans to issue what is termed an ‘e-krona‘ currency.
Adrian makes the point that Fintech provides ‘new opportunities for central banks to improve their services – including issuing digital currency.’ A recent blog post of mine (BIS General Manager Outlines Vision for Central Bank Digital Currencies) looks into this in more detail.
Exactly how far advanced globalists are in introducing digital currencies is an open question. If we go simply by what the IMF and the BIS are communicating, they remain in the developmental stages, with less than a quarter of central banks actively seeking to issue CBDC’s and just four pilot tests being undertaken. But behind the scenes the push in the direction of digital currencies grows exponentially. A sign that globalists are rapidly advancing an agenda is when they ratchet up communications on the subject.
According to Adrian, the Fintech Roundtable Program was launched to ‘facilitate peer-to-peer, in-depth dialogue and information-sharing among the IMF’s member countries regarding the fintech challenges they face and discuss policy responses.’
The sharing of information, under the direction of the IMF, has no doubt accelerated over the past twelve months. As central banks undertake surveys and conduct pilot tests of new technology, the data accrued eventually goes towards building what Adrian calls a ‘global consensus‘.
Tied in with this are calls for regularly reforms which Adrian eludes to:
New issues are also being raised by the introduction of new products that fall within cross-sectoral regulatory gaps, and that are outside existing legal definitions. Such products require adapting prudential regimes and modernizing the legal frameworks.
Changes on the legal and regularly front are already underway, with China devising a new system of regulations on Fintech and the Swiss Federal Council beginning a consultation on adapting federal law to ‘DLT developments‘.
What I believe these issues combined illustrate is that ambitions for regional fiscal unions and digital currencies are in no way confined to developing countries. If anything, such nations are being used as test beds for piloting technology and preparing the groundwork for its implementation to advanced economies.
I also think it would be unwise to assume that extreme fluctuations in currency markets, as witnessed in countries like Argentina and India, will not become a feature in the West as central banks edge nearer to making CBDC’s a reality. From a UK perspective, Brexit is a prime vehicle for destabilising foreign exchange markets.
If globalists ever manage to successfully present CBDC’s as a solution to economic crisis – one that the general population buys into – that is when their rise will be unstoppable.
2025 is one staging post for reforms to the financial system. 2030 remains the target for implementing sustainable development goals – goals that work hand in hand with the full digitisation of money. Time is increasingly short, but recognising the dangers now and resisting the advancement of what is a globalist agenda for control remains within our ability.
Steven Guinness 
My first thoughts on the centralisation of fiscal policy at regional level are mixed. Though I am well aware of that being a long-standing goal in EU, I am left wondering. The Maastricht treaty is pretty much wet paper now as far as defining deficits, the alignment is taking place at the zero bound along with ECB balance sheet expansion and Target2 imbalances, with the imposed and disliked technical restructuring forced on countries (I cannot see it as other given that it crosses public will so often) for those that are too out of line. The latter method is said now to be avoided, even by the IMF if I remember.
That firstly leaves voluntary fiscal alignment . I do not see this happening easily, but I am wary also. The political scene in Europe is becoming increasingly atomised in many countries. Traditional authorities and parties have lost much authority since 2008, for the various reasons associated with economuc difficulty and public scrutiny. These parties were the definition of national identity, and they have been shown to either be incompetent or corrupt. The newer parties are often quite empty, liberalist, civic, pseudo far right sometimes, in short there are few that can be called truly sovereign minded at EU level, and even where they exist they are diluted as are their competitors in a new multi party frameworks of presentation that make effective government very difficult in terms of clear ability or direction… or responsibility. So there I see the possibility not of concensus towards a unified fiscal policy, but a weakness towards it. In that scenario regional bailout will be touted on Eurobonds that demand concessions of fiscal management. Countries will be reminded that their accounts, which are their money, are so combined at CB level that a regional policy is needed to save them.
So this brings us secondly to CBDC , and here is where a common fiscality might well emerge also. Citizen accounts might link directly to CB balance, and therefore national fiscal management would have to take place in terms of accounting via the national CB or the ECB in this case. The understanding of taxation, of politics, by citizens, will be understood to revolve around access to their accounts stationed at the ECB (as clearing agent at least if not understood as issuer or guardian) . This will give options of denial vs. national authorities, in short will pivot the understanding of authority to a personal accounting /EUlegislation/national authority combination that does not currently exist.
Thank you for your good work.
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