Full text here.
The Vatican called on Monday for the establishment of a “global public authority” and a “central world bank” to rule over financial institutions that have become outdated and often ineffective in dealing fairly with crises.
Although it is not specific what they mean by a “central world bank” (for a similar thing already exists), we can assume that they mean something deeper and broader than the current IMF/World Bank/G20 structure, possibly a central bank in the traditional sense — the author of a new global currency, and a component of a new global government.
From the Vatican:
On the way to building a more fraternal and just human family and, even before that, a new humanism open to transcendence, Blessed John XXIII’s teaching seems especially timely. In the prophetic Encyclical Pacem in Terris of 1963, he observed that the world was heading towards ever greater unification. He then acknowledged the fact that a correspondence was lacking in the human community between the political organization “on a world level and the objective needs of the universal common good”. He also expressed the hope that one day “a true world political authority” would be created.
In view of the unification of the world engendered by the complex phenomenon of globalization, and of the importance of guaranteeing, in addition to other collective goods, the good of a free, stable world economic and financial system at the service of the real economy, today the teaching of Pacem in Terris appears to be even more vital and worthy of urgent implementation.
But a world central bank in the traditional sense would face exactly the same problem as the ECB: monetary union without fiscal union means that governments can very easily get into hot water by borrowing money that they don’t control, and on which they do not control the interest rates. This means that unless all nations are extremely fiscally cautious there will be defaults. The highly interconnected nature of the global financial system means that one set of defaults can trigger a global default cascade, as hyper-leveraged banks quickly become insolvent.
So a world central bank would either mean lots and lots of bailouts for both banks and governments (a problem that Europe is currently struggling with), or global fiscal union. If you thought Europe had a hard time balancing the interests of the free-spending Greeks with the dynamic Germans, multiply that problem by a hundred and add nuclear weapons and fervent nationalism to apply it to America and China. Global fiscal union, much like a “true world political authority” is as politically impossible as it has ever been.
Furthermore, a world central bank would homogenise the business cycle. Global growth didn’t stop in 2008 because China and the East kept growing while the West floundered. One currency, and one central bank would mean that recessions and depressions would (by definition) be more global — and therefore more devastating — in nature. This would seem to make the problems worse, not better.
A global central bank is a non-solution. The zombified and debt-ridden nature of the global financial system is a huge weight (I called it the argentinosaurus in the room) on the back of humanity — but a weight that politicians, economic managerialists and the establishment at large seem excessively keen to retain. The sad reality is that all of this soul-searching, and all of this economic turmoil could be averted if politicians (and “global authorities”) let ailing financial systems and financial infrastructure fail.