Has anyone ever really believed that politicians will be able to save us from economic ruin? Didn't think so. Economic problems are global, but politics remain local. National leaders have been impotent because their top priority is not shoring up the global economy but watching their political back at home.
But a single clause in the communiqué issued by the G-20 leaders hints that political impotence is about to end:
"We have agreed to support a general SDR allocation which will inject $250B into the world economy and increase global liquidity," it said. Special Drawing Rights, abbreviated as SDRs, is the synthetic paper currency issued by the International Monetary Fund.
In effect, the G-20 leaders have activated the IMF's power to create money and begin global "quantitative easing", writes Ambrose Evans-Pritchard at The Telegraph. "In doing so, they are putting a de facto world currency into play."
Why is this important? The biggest problem facing the global economy is the fundamentally unbalanced system in which the excess production and savings of some countries need to be matched with the excess consumption of other countries. A global currency might provide a good framework to restore balance to the system, because a centralized, global central bank will be more effective in tackling global imbalances than a group of uncoordinated central banks reacting to local conditions.
A global currency might be attractive to central banks looking for an alternative to the U.S. dollar, but it won't be an easy adjustment for the U.S., which relies on pumping out dollars to inflate its way out of debt. The dollar is being challenged, and Obama's administration have some difficult decisions to make.
The world is now a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity. But it's going to be a fragile process of adjustment, and America will likely feel the most pain. Is Obama going to put local interests ahead of global problems and derail the global currency? I hope not.