The U.N. trade chief is warning that a trade war could be the death knell for the global economy and the U.K. economy, but some analysts see a chance for it to be averted through the creation of an international financial institution.
The chief executive of the World Bank, Christine Lagarde, is among those speaking out in favor of a new body.
“I am concerned about a potential crisis in the world economy, and I think we are in a situation where the only way to avert that crisis is to create an international bank with a new international framework,” Lagarde said on Wednesday.
Lagarde said she had seen a strong desire to create a bank in the United States, but she said the details needed to be worked out.
But the chief executive said she was optimistic that a proposal from Britain could be adopted as a model.
British Prime Minister Boris Johnson is pushing for the creation in the U-K.
of a central bank with the power to create new money through the issuing of sovereign debt and foreign exchange, as well as through the use of foreign exchange and sovereign bonds.
Britain has already created a central financial institution with the powers to create money, and the new bank could also play a role in other aspects of financial regulation, Lagarde told a news conference on Wednesday in Geneva.
However, Lagard said the current structure of the U.-K.
central bank could not ensure that the money supply was backed by the backing of a sovereign nation.
There are two possible approaches to the creation, she said, but only one would be successful.
She also noted that the U U.KS. would be able to create its own currency and its own exchange rate if it chose to do so, but there would need to be an agreement with the European Union and the United Kingdom that the new currency and exchange rate would be backed by a national currency, and that the countries that issue the currency would be members of the new financial institution and would be allowed to issue the new national currency as well.
For example, the British government could ask for an additional €20 billion ($22 billion) for the UK. and offer to pay the EU the same amount, she added.
Some observers believe the current U.KK. central banking structure could be tweaked to allow the creation by a British government of a national reserve currency and the creation and operation of a bank with an equal role in financing the creation.
It is a possibility that would be explored, Lagasse said.
One of the advantages of creating a central banking institution is that the country could maintain the monetary policy that is needed to support its economy, she told reporters.
We are in this situation because of the current global economic system, Lagade said, adding that she hoped that this was not a way of putting too much emphasis on the creation or even the creation itself.
Even so, Lagassars comments suggest that some nations may want to consider creating a new institution with a different role, such as one that would issue a sovereign currency, but also would not be dependent on the USK or the European Central Bank.
A new institution, she noted, could also provide a platform for the development of a financial market that could provide an alternative for those countries with weak financial institutions and could provide more transparency and accountability.
It could be something that can be developed, but not a system that could be developed with the kind of central banks and other institutions that we have today.”