[Source/ Yanis Varoufakis, translation/Observation Network Chen Jiarui]

Donald Trump's actions have made it impossible for anyone with common sense to indulge in the illusion that global commerce can proceed as usual. But even as we are angered by Trump's shocking behaviors, decisions, and words, we should welcome them.

The global economy must either rebalance or collapse, potentially more disastrously than the 2008 financial crisis. Therefore, the only question worth discussing is: who can take action to help correct the imbalances that harm developing countries while containing the spread of fascism in Western economies?

We know that the EU is powerless to join the fray and contribute to the world's rebalancing. The reason can be traced back to the design flaws of its common currency, the euro, as well as its refusal to push for fiscal and investment decision federalization when the euro crisis erupted. As a result, the EU is now mired in long-term economic stagnation and political division.

Countries using the euro

We also know that the US is unwilling to help the world achieve rebalancing. Despite Treasury Secretary Scott Bessent's talk about rebalancing trade and capital flows, the Trump administration he serves aims for contradictory goals: on one hand, it wants to depress the value of the dollar, while on the other hand, it seeks to attract more capital inflows into the US. This contradiction can only be resolved through massive coercion, but the US lacks both the ability and the discipline to enforce it.

So, who is left? The answer is China. In April 2009, at the G20 summit in London, the Chinese delegation proposed reviewing the 1944 Bretton Woods Conference and reviving Keynes's proposal for the International Clearing Union (ICU) to coordinate global monetary policies, prevent the deterioration and spread of the North Atlantic financial crisis.

Unfortunately, just as the US rejected Keynes's proposal in 1944, it similarly ignored China's suggestion in 2009. The next sixteen years were a painful history: global imbalances continued to worsen and have now spiraled out of control.

Given the EU's inability and the US's unwillingness to address the growing global imbalances, what can China do? My answer is to establish a new Bretton Woods system without the US or the EU, and then gradually incorporate other countries after the advantages of the new system become apparent.

Please don't misunderstand; I am not suggesting that China recreate the old Bretton Woods system of the 1950s and 1960s, becoming another global hegemon. Instead, I advocate that China work together with BRICS countries and other partners to create a truly new multilateral system, which was exactly Keynes's idea in 1944 — an idea Roosevelt rejected, leading to the establishment of American hegemony.

Before discussing how the new Bretton Woods system could operate to become a genuinely multilateral, non-hegemonic, mutually beneficial system, let me first address some possible objections from the West. Some may say that China cannot become a pillar of the international trading system because it implements capital controls. But haven't they forgotten that both the old Bretton Woods system and Keynes's proposed International Clearing Union were built on capital controls?

Others may question whether a country must run a trade deficit to become the core of a large international trade and monetary system, so that other countries can run trade surpluses with it. Haven't they forgotten the original purpose of the old Bretton Woods system was to maintain America's trade surplus? Clearly, these objections reflect more prejudice from the opponents than serious economic analysis.

Now, let's discuss how the new Bretton Woods system could operate to become a truly multilateral, non-hegemonic, mutually beneficial system. To prevent increasingly larger imbalances in market-driven trade systems, Keynes advocated replacing the system where "the adjustment process is mandatory for debtor countries and voluntary for creditor countries" with a mechanism that symmetrically adjusts both debtor and creditor countries. Here's what this system might look like.

Participating countries retain their own currencies and central banks. All trade and capital flows between countries are settled in a common digital unit of account, which we might call "cosmos." Each country's central bank holds a reserve account denominated in cosmos at a common institution.

This institution operates on a transparent digital distributed ledger and issues cosmos according to an algorithm that adjusts the total supply of cosmos based on agreed-upon global trade volume, while incorporating a countercyclical adjustment mechanism that increases cosmos supply when the global economy slows down.

Special Drawing Rights (SDR) is not a classic form of money but an asset. The value of Special Drawing Rights is based on five major global currencies: the US dollar, the euro, the renminbi, the Japanese yen, and the British pound.

So far, all proposals have failed to address imbalances within the system, such as huge trade deficits and surpluses. However, this new system design can achieve two key interventions that not only limit imbalances but also release enormous potential for mutually beneficial development. I call these two interventions "the levy" and "the charge." Here's their definition and how they work:

The levy: An annual trade imbalance tax is levied based on the proportion of current account deficits or surpluses held by each country's central bank in their cosmos accounts and deposited into a Common Development Fund (CDF) managed by a multilateral institution.

The charge: Private financial institutions pay a "peak fee" to the common fund based on the proportion of capital outflows, similar to how ride-hailing services increase prices for customers during peak hours.

The basic principle of "the levy" is to incentivize surplus countries' governments to increase domestic consumption and investment while systematically reducing the international purchasing power of deficit countries. Foreign exchange markets will factor this into their calculations, adjusting exchange rates faster to address current account imbalances and offsetting most capital flows that currently support long-term trade imbalances.

As for "the charge," it automatically penalizes speculative capital inflows or outflows without giving discretionary power to bureaucrats or requiring rigid capital controls.

In this way, through the common fund of this new Bretton Woods system, participating countries can obtain an additional global sovereign wealth fund without any paid-in capital. It achieves two goals at once: balancing global trade and providing new funding for a fair green transition worldwide.

There is no doubt that this is feasible. China has the relevant technology, especially expertise in highly complex digital payment systems. Other countries around the world desperately need a stable and mutually beneficial trade system rather than one characterized by imbalances and exploitation.

We also have institutional experience in international clearing systems. For example, the Target2 accounts of the European Central Bank tax current account deficits within the eurozone. What the world lacks is the political process to bring all these elements together.

If Donald Trump's shock therapy, which claims to balance the world economy, instead prompts China to work with countries around the world to build the multilateral system Keynes proposed in 1944, causing the dream of the US dominating the world for eighty years to shatter, wouldn't that be a delicious irony?

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