WISDOM DOES NOT ALWAYS LIE WITH THE COMPLIANT
The Basel Committee on Banking Supervision, formed in 1974, demonstrated its power to make or break economies when it set the global standard for capital adequacy at 8% in 1988. Like Germany, Japan had risen to become an economic powerhouse by the late 80s. It seemed poised to take over the world. Japan’s exports had achieved global dominance. The Japanese used their export earnings to buy prized American assets.
In 1988 the Japanese economy then suddenly took a dive. The Bank of International Settlements provided the salvo, issuing a Basel Accord that raised banks capital requirement from 6% to 8%. Japan’s banks the powerhouse of Japan’s economy were less well capitalized than other banks. Credit collapsed followed by a property led recession. Japan’s stock market dropped 32%.
In the opinion of some critical observers, the squeeze on the Japanese banks by the BIS was an intentional move to cut them down to size.
According to Economist Henry C.K. Liu, the Basel Accords are nothing but an instrument to force national banking systems to march to the same tune, designed to serve the needs of highly sophisticated global financial markets, regardless of the needs of national economies.
National banking systems are suddenly thrown into the rigid arms of the Basel Capital Accord sponsored by the Bank of International Settlements, or to face the penalty of very high risk premium in securing international loans.
BIS regulations serve only the single purpose of strengthening the international private banking system, even at the peril of national economies.
The IMF and the international banks regulated by the BIS are a team: the international banks lend recklessly to borrowers in emerging economies to create a foreign currency debt crisis, the IMF arrive as a carrier of a monetary virus in the name of sound monetary policy, then the international investors come as vulture investors in the name of financial rescue to acquire prime national assets.
As John Perkins revealed in Confessions of an Economic Hitman, the trap for governments begins when they are induced to accept loans in foreign currencies, making them debtor nations subject to IMF and BIS regulation.
BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking.
It may seemed wise to borrow instead from a BIS victimized nation, but as Liu notes, countries with their own natural resources do not actually need foreign loans.
Applying the State Theory of Money (which assumes a sovereign nation has the power to issue its own money) any government can fund with its own currency all its domestic developmental needs.
Coming soon : Don’t cry for me Argentina.
An Islamic Monetary Reformist’s Take cum Edited Excerpts from Ellen Brown’s From Austerity to Prosperity- The Public Bank Solution
Islamic Monetary Reformist
Muhammad Zahid Abdul Aziz
Note: The Islamic solution will be bespoke with its required parameters.