‘Reducing Systematic Risk with an International Financial Code’ A Thesis submitted by Hassaan Joosub in partial completion of the award of Doctor of Philosophy ‘I hereby declare that the Thesis submitted is wholly the work of Hassaan Joosub Any other contributors or sources have either been referenced in the prescribed manner or are listed in the acknowledgments together with the nature and scope of their contribution. Geneva School of Diplomacy and International Relations University Institute 2018 I agree that, should the School wish to retain it for reference purposes, a copy of my Thesis may be held by the Geneva School of Diplomacy and International Relations. Confidentiality I confirm that this Thesis does not contain information of a commercial or confidential nature or include personal information other than that which would normally be in the public domain unless the relevant permissions have been obtained. In particular, any information which identifies a particular individual’s religious or political beliefs, information relating to their health, ethnicity, criminal history or gender, has been made anonymous, unless permission has been granted for its publication from the person whom it relates. Copyright The copyright for this Thesis remains with me. Requests for Information I agree that this Thesis may be made available for review and kept in the public domain. Signed: Name: Date: Programme: JOOSUB 3 Geneva School of Diplomacy and International Relations University Institute Name: Hassaan JOOSUB Title: ‘Reducing Systematic Risk with an International Financial Code’ Advisor: Osvaldo R. AGATIELLO Abstract This paper suggests an alternative framework for money, banking and finance. Aspects and applications of Abrahamic law are explored along with other banking reform plans, namely the Chicago Plan, the IMF’s Special Drawing Rights, and the gold standard. The epilogue also takes a special look at the applications of the evolving blockchain technology phenomenon. Historical real economy transactions demonstrate the transformation of gold, silver and other asset backed currencies as a means of exchange, to bills, representing a fiat currency. Existing government, corporate and banking structures prove that the aforementioned transformation has facilitated disequilibrium in the global monetary system by relying on the tenets of interest, debt and speculation. Nine areas of systematic financial importance have been isolated for examination and structural reform. Thus, the aftermath of the Bretton Woods system reveals the duality of apparently flourishing commerce coupled with a degradation of ethics in international finance. The polarity on wealth and lifestyle has never been so wide. Existing research on historical policies and various banking products exhibits the inescapable cyclical nature of the global financial economy. Many reputable scholars agree that our financial ecosystem is on the brink of catastrophic collapse. This paper will explore and recommend alternative principles for immediate adoption that may aid in avoiding a global economic catastrophe. Historical evidence referenced in the body of the paper will justify the macroprudential reform proposals that ultimately culminate into an International Financial Code. This series of nine Articles detail the proposed fully backed, bimetallic Special Drawing Right, which proves to remain secular whilst being more ethical in approach. Word Count: 71,000 JOOSUB 4 TABLE OF CONTENTS GLOSSARY 7 PROLOGUE 11 INTRODUCTION 16 LITERATURE REVIEW 24 1. CHAPTER 1 – HISTORICAL CONTEXT 24 1.1. Circa 1640, Modern Banking is Born 24 1.2. 1880 to the Great Depression, The Golden Years of the Gold Standard 26 1.3. 1944 to 1971, The Bretton Woods Agreement 28 1.4. 1971 to Today, The Aftermath of the Bretton Woods Agreement 32 2. CHAPTER 2 – MINOR REFORMS 34 2.1. Dodd-Frank Act, 2010 34 2.2. Central Banks and Other Regulatory Bodies 37 2.3. Ethical Attempts – Economic Policy Prescriptions 40 2.4. Ethical Attempts – Islamic Finance? 42 3. CHAPTER 3 – MAJOR REFORMS 57 3.1. Solutions with a Short Shelf Life 57 3.2. The Chicago Plan 59 3.3. Special Drawing Rights 62 3.4. The Gold Standard 66 4. CHAPTER 4 – REGULATORY PERSPECTIVES 74 4.1. Structural Versus Cyclical 74 4.2. Macroprudential Versus Microprudential 78 METHODOLOGY 84 5. CHAPTER 5 – RESEACH APPROACH 84 5.1. Selection Criterion 84 RESEARCH ANALYSIS 88 6. CHAPTER 6 – EXAMINATION OF CURRENT LANDSCAPE 88 6.1. Money 88 6.2. Debt 93 6.3. Capital Adequacy 97 6.4. Credit Rating Agencies (CRA) 103 6.5. Accounting Principles 106 6.6. Shadow Banking 109 6.7. Derivatives 111 6.8. Too big to Bail – too big to fail 115 6.9. Proprietary Trading 120 JOOSUB 5 IMPLICATIONS OF RESEARCH FINDINGS 125 7. CHAPTER 7 – REVISION OF MINOR REFORMS 125 7.1. ‘Ethical’ Finance Revisited 125 7.2. Platform for Ethical Codification 128 7.3. International Financial Code 131 8. CHAPTER 8 – REVISION OF MAJOR REFORMS 148 8.1. A ‘Gold Standard’ Revisited 148 8.2. Monetarists Versus Austrians 152 8.3. The Golden SDR 156 8.4. The Silver Crutch 158 9. CHAPTER 9 – INTERNATIONAL FINANCIAL CODE 167 9.1. Connection to Research Analysis 167 1. Article I 168 2. Article II 172 3. Article III 173 4. Article IV 175 5. Article V 177 6. Article VI 178 7. Article VII 181 8. Article VIII 182 9. Article IX 184 10. CHAPTER 10 – FUTURE LANDSCAPE 187 10.1. The Faustian Prospect 187 10.2. What is the Role of Banks? 191 10.3. The End is Nigh 194 10.4. IMF in the Spotlight 199 CONCLUSION 207 11. CHAPTER 11 – RESEARCH FINDINGS 207 11.1. Existing Contributions 207 11.2. Original Contributions 208 11.3. Research Limitations 212 11.4. Implications for Future Research 216 11.5. Closing Remarks 220 EPILOGUE 222 12.1. An Ode to Blockchain 222 12.2. Decentralization Revolution 223 12.3. The End of Cash 226 12.4. Blockchain Decoded 227 12.5. The Useful Puzzle 229 12.6. Absolute Transparency 230 12.7. Mining 232 12.8. The Birth of Bitcoins 233 12.9. Bitcoin Mania 237 13.0. Funny Money 241 JOOSUB 6 13.1. New Frontiers 245 13.2. Déjà Vu 248 13.3. Theoretical Justifications 250 13.4. In Defence of Easy Money 256 13.5. Seven Habits of a Highly Effective Bitcoin 263 13.6. Geopolitical Tension 267 13.7. Connection to Research 271 13.8. Bitcoin Teething Troubles 275 13.9. David and Goliath 280 14.0. Conclusions 287 REFERENCE LIST 294 • Books 294 • Books with an Editor 295 • Journals 295 • Newspapers, Print & Digital 296 • Websites 300 • Blogs 308 • Interviews 309 • Government Agency Publications 309 • Parliamentary & Legal 311 • Conferences 311 • Theses & Studies 311 • Audio Visual 315 JOOSUB 7 GLOSSARY AAOIFO Accounting and Auditing Organization for Islamic Financial Institutions ABCP Asset Backed Commercial Paper Conduit ABCT Austrian Business Cycle Theory ACE Allowance for Corporate Equity AI Artificial Intelligence AIIB Asian Infrastructure Investment Bank ASIC Application Specific Integrated Circuit ATM Automated Teller Machine AUM Assets Under Management BCBS Basel Committee on Banking Supervision BCCI Bank of Credit and Commerce International BIS Bank of International Settlements BLME Bank of London and The Middle East BRICS Brazil, Russia, India, China, South Africa BTC Bitcoin BWC Bretton Woods Committee CAR Capital Adequacy Ratio CBCC Central Bank Cryptocurrency CBOE Chicago Board Options Exchange CD Certificate of Deposit CDO Collateralized Default Obligation CDS Credit Default Swap CDX Credit Default Swap Index CEO Chief Executive Officer CET1 Common Equity Tier 1 CFR Council on Foreign Relations CFTC Commodity Futures Trading Commission CIA Central Intelligence Agency CME Chicago Mercantile Exchange COMMEX Commodity Exchange, Inc. CPI Corruption Perceptions Index CPU Central Processing Unit CRA Credit Rating Agency CRIF Credit Information S.p.A CRM Customer Relationship Management DBRS Dominion Bond Rating Service Limited DIB The Dubai Islamic Bank DIF Deposit Insurance Fund DLT Distributed Ledger Technology DoD Department of Defence, U.S. ECDSA Elliptical Curve Digital Signature EMDC Emerging Markets and Developing Economies EMH Efficient Market Hypothesis EMIR European Market Infrastructure Regulation ESMA European Securities and Market Authority ETF Exchange Traded Fund EU European Union FASB Financial Accounting Stability Board FASEB Federation of American Societies for Experimental Biology FINMA Swiss Financial Market Supervisor Authority JOOSUB 8 FOMO Fear of Missing Out FSA Financial Services Authority, UK FSB Financial Stability Board FT Financial Times FX Foreign Exchange G10 Group of Ten G20 Group of Twenty G30 Group of Thirty GAAP Generally Accepted Accounting Principles GBP British Pound (ISO 4217) GDP Gross Domestic Product GE General Electric GFSN Global Financial Safety Net GPI Global Peace Index GLBA Gram-Leach-Bliley Act, 1999 GM General Motors HBS Harvard Business School HDI Human Development Index HPM High Powered Money HQLA High Quality Liquid Assets HSBC Hong-Kong Shanghai Banking Corporation IAIS International Association of Insurance Supervisors IAS International Accounting Standards IASB International Accounting Standards Board IBRD International Bank for Reconstruction and Development ICAAP Internal Capital Adequacy Assessment Process ICO Initial Coin Offering ICU International Clearing Union IDB Islamic Development Bank IEF Index of Economic Freedom IFC International Financial Code IMF International Monetary Fund ING International Netherlands Group IOSCO International Organization of Securities Commission IPO Initial Public Offering ISDA International Swaps