Financial Innovations and Monetary Reform : How to Get Out of the Debt Trap

https://link.springer.com/book/10.1007/978-3-031-24189-5 Written by two leading experts on multinational accounting and billion-dollar international investment funds, this book provides a framework for a global reform of the world monetary system, and defines a decidedly new approach to dealing with public debt mortgage, an issue that we can see in many countries in Europe and around the world. The authors put forward a proposal for transforming sterile financial masses, which are withdrawn from the real economy as they no longer bear interest, into wealth. To facilitate this return to the real economy, the authors propose that a significant share of public debt be converted into net equities in the world of business and goods production in order to find new profitable investment projects. The idea is bold, and the authors strive to demonstrate its technical feasibility. They are convinced that this approach can accompany and enhance a movement that has already begun, namely the implementation of vast national and international investment programs in major infrastructures and research projects in innovative sectors. This work builds on the authors’ two previous books, which focus on the monetary system. The first, published in 2010 and including a foreword by former French Finance Minister Christine Lagarde, analyzes the new virtual dimension of money. The second, published in 2014, puts forward an innovative proposal for a new financial regulation aimed at more stable economies. This third book is intended for professionals in the financial industry, including decision makers at banks, accounting and private equity firms, as well as policymakers at central banks and government institutions involved in the implementation of financial and monetary reforms. Foreword by Jacques de Larosière 7 Foreword by Raphaël Douady 9 Acknowledgments 13 Introduction: Monetary Representation and Economic Reality 15 Contents 22 About the Authors 27 1 Short History of Money from Antiquity to the Twenty-First Century 28 1.1 The Origins 28 1.2 Caesar and Augustus: Legal and Financial Reforms 30 1.3 The Last Turn to Modern Money: The U.S. Default on Gold in 1971 35 2 The Evolution Toward Modern Money and the Path Toward Digital 43 2.1 Money and Accounting Are Closely Linked 43 2.1.1 Financial Statements: Defining the Real World and the Financial Universe 43 2.1.2 The Real World and the Financial World 44 2.1.3 The Basis for the Expression of Today’s Money 46 2.1.4 Stock Markets Influence Financial Statements; Monetary Transmission 48 2.1.5 One Global Language, Accounting 48 2.2 The Uniqueness of the Transcription of Exchanges 49 2.2.1 The Principle of the Double Part 49 2.2.2 The Principle of the Annual Exercise: Integrate the Time Factor 51 2.3 Accounting for Liabilities 51 2.3.1 Accounting for Financial Instruments at “Fair Value” (Addressed by IFRS 9) 52 2.3.2 A New Vision of Accounting in a New World 53 2.3.3 The Shortcomings of Accounting 54 2.3.4 Lessons Learned from the Uncertainties of Reading the Books 57 3 The Current Model, the Role of Central Banks 59 3.1 The Interaction Between the Real World and the Financial World 59 3.2 The Traditional Role of Central Banks 60 3.3 The Issue of Profits and Taxation 62 3.4 The New Positioning of Central Banks 63 3.5 Central Bank Accounting and Data 65 3.6 Functions and Tools of Central Banks 67 3.7 The New Crisis 67 3.8 The Transmission of Monetary Policies to the Non-Financial World 68 3.9 Rates and Volumes Are the Key Tools of Central Banks’ Monetary Policies 68 3.10 Risk Borne by Central Banks 69 3.11 The Relationship Between the Real World and the Financial Universe from the Point of View of Transaction Monitoring by the Central Bank 69 3.12 Disconnections Between the Real World and the Financial World and Leaks in the Information System 72 3.13 Reducing the Scope of Central Bank Action 72 3.14 The Monetary Aspects of Distribution 74 4 The Monetary World and Its Analytical Tools 76 4.1 Exchanges Are the Source of Monetary Instruments 77 4.2 Update on the Coherence of Currency Spaces and Its Consequences 78 4.3 The Transformation of the Monetary World 79 4.4 The Monetary Unit 79 4.5 Distinctions of the Medium, the Standard and the Blockchain 81 4.6 The Stamping and the Standard 82 4.7 The Right to Issue a Standard 83 4.8 The New Approach of the Bank for International Settlements (BIS) 85 4.9 Conceptual Discussion for an Expanded Monetary Approach 85 4.10 The Necessary Development of the Observation of the Single Financial Space 89 4.11 M5 and M6: Derivatives and Separation Between Instruments 90 4.12 The Landscape of Exchanges Through M5, M6 92 4.13 Analytical Objectives of Exchange Rate Observation 94 4.14 The Classification of Instruments 94 4.15 Exchangeability Between Instruments 95 4.16 The New Paradigm 95 4.17 The Power of Seigniorage and Its Challenges Today 96 4.18 A Formula Test: STD (Serval, Tranié, Douady) 99 5 The Monetary System, the Issues 101 5.1 What Does the Word “System” Mean When It Comes to Money? 101 5.2 Description of the Existing System 102 5.3 System Foundations—Independence and Sovereignty 103 5.4 Central Banks at the Base of the System 104 5.5 The American Federal Reserve Bank’s Objectives 104 5.6 The Central Bank of the European Union “ECB” 105 5.7 The People’s Bank of China (PBoC or PBC) 106 5.8 What Does Central Bank Independence Mean? 106 5.9 International Monetary Institutions 107 5.9.1 The International Monetary Fund (IMF) 107 5.9.2 The World Trade Organization (WTO) 111 5.9.3 The Bank for International Settlements (BIS) 112 5.9.4 The Main Institutions Involved in Transnational Lending 113 5.9.5 The World Bank Group (WBG) 114 5.9.6 Regional Development Banks 114 5.9.7 Issues to Be Discussed for the Implementation of a Renewed Monetary System 115 5.9.8 Financial Market Infrastructures (MFIs) 117 5.9.9 The G20 Distinguishes Three Categories of Infrastructure 117 5.9.10 Attempts to Propose Alternative Solutions to Risk Concentration 120 5.9.11 An Extended Stabilization System from the CCPs (Central Clearing Counterparty) Could Be Considered 121 5.9.12 Topics Not Yet Adequately Addressed by Monetary or State Institutions 121 5.9.13 International Coordination, from G7 to G20 125 5.9.14 The Current Situation 126 5.9.15 The Financial Stability Board (FSB): The Necessary “Strange Animal” 132 5.9.16 Toward a New World 136 5.9.17 Intermediate Synthesis 138 6 The Monetary Reform, Its Stakes and Its Modalities 140 6.1 The Standard as the Central Issue of a Renewed International Monetary System 140 6.1.1 Why Would a Clear Separation Between the Unit and the Support Be a Positive Step Forward? 142 6.1.2 How to Protect the Inviolability of the Standard? 143 6.1.3 What Exchange Rate Parity with Other Currencies Should Be Adopted? 143 6.2 The Objectives of Monetary Reform Within the Framework of an International Treaty 144 6.3 What International Conference? Leadership Requirements, Participants and Transition Process 145 6.4 The Rise of the FSB 145 6.5 The G20 as a Political Leader for International Coordination 146 6.6 Technical Skills: BIS and IMF 147 6.7 The Role of Central Banks Needs to Be Redefined 147 6.8 The Place of Companies in the New Monetary Framework 148 6.9 OECD Governance 149 7 The Reduction of Public Debt, the Heart of a Monetary Reform 151 7.1 Possible Ways to Reduce Debt 151 7.1.1 The First Path: Provoke the Reduction of the Value of the Instruments by the Rise of the Rates 152 7.1.2 A Second Path to Debt Reduction: Organized Debt Clearance 153 7.1.3 The Third Way: Converting Debt into Equity 154 7.2 Implementation of a Public Debt Reorganization Scheme 155 7.2.1 Debt Reduction Process in the Western World 155 7.2.2 Feasibility of the Exchange Project for Western Countries 157 7.2.3 Reminder of Some Basic Data 157 7.2.4 Principle of the Transformation of Public Debt into Investment Securities 159 7.2.5 A Major Entrepreneurial Project at the Heart of a New Economic Paradigm 160 7.2.6 A Dynamic Process to Build 161 7.2.7 The Transformation Process 162 7.3 A—The General Dimension of the Project 163 7.4 B—The Debt Transformation Process for the Eurozone 164 7.4.1 Creation of a Hive-Off Fund Called Transformation Fund or “TF” 165 7.4.2 The Exchange of Acquired and Subscribed Shares for Debt 167 7.4.3 Neutralization of Public Debt by Allocation of Securities Representing Investments 168 7.4.4 Joint Commentary on the Taxation, Trading Process and Legal Status of Trading Rights in Projects 169 7.4.5 The Specificity of the Exchange Scheme 170 7.4.6 An Unavoidable Transformation 171 7.5 C—The Process for the US Dollar Zone 171 7.5.1 A Realistic Global Objective 173 7.5.2 The 60% Cap 174 7.6 D—Countries that Do Not Have Monetary Autonomy (So-Called Peripheral Countries) and Asian Countries that Together Form a Fast-Developing Zone 174 7.7 E—Project Availability, Side Effects and Common Currency Issues 176 7.8 F—Common Success Factors, Coordination and International Aspects: Moving Toward a Multilateral Monetary World 177 7.8.1 The Conditions and Challenges of a Successful Transformation Plan 178 7.8.2 The Deployment of the Device and its Requirements: No Speculation 179 7.9 Conclusion 179 Conclusion 184 Appendices 188 Appendix A: The HTDA Project to Track Exchanges in a New Digital Monetary Universe 188 Appendix B: Glossary 188 Appendix C: List of Central Monetary Institutions 188 Bibliography 208