Just one per cent negative growth in the US economy in the second quarter of this year amidst steady rise in the stock prices has made the big corporate houses jubilant worldwide. However, there are symptoms of the global recession easing. But the means that have been used are contrary to the worldwide demand for new global financial architecture and alternatives to the dollar-led recovery to be fair and sustainable, advantageous to the working class in general and people of the least developed economies like ours in particular.

With the sharp fall in the rate of profit in every major capitalist country, the Bretton Woods Agreement of 1944 collapsed as it had embraced fixed exchange rate system. It had fixed the value of national currencies in terms of the US dollar, which in turn was tied to gold at the rate of $ 35 per ounce. Initially, it contributed to expand trade and then investment to some extent. However, the very expansion gradually exposed the contradiction lying at the heart of the Bretton Woods System - between a global capital expansion and the currency system still grounded on the national state. With gradual erosion of economic superiority of the US amidst

such developments, US removed the gold backing from the system on Aug 1971 and attempts to

maintain a regulated currency system collapsed. A floating dollar regime was introduced in 1973. This was the beginning of instability in the trade, finance and payment system worldwide encouraging hoarding, manipulation and currency swaps for quick profits by the speculators.

With big currency movements under the floating dollar rate regime, new mechanisms were developed to cover the risks. Aimed at minimizing the losses, a method of financial derivative was developed. In 1972, the year after the demise of the Bretton Woods Agreement, a market in currency future was launched on the Chicago Mercantile Exchange. In 1973, again a formula for pricing options was developed. With increased trading in options after 1973, other types of derivatives were developed including the currency swap, in

which buyers could swap bonds issued in one currency with bonds in another, depending on their

assessment of money movements. Then the interest rate swap was introduced in which fixed interest rate payments could be swapped with variable rate payments or wise versa.

As a consequence of these developments, foreign exchange transaction in the world economy increased from $ 15 billion per day to $ 1.26 trillion by 1995. The growth of derivatives was even more phenomenal. According to the Bank for International Settlements, the value of the underlying asset on which the derivative is based for over the counter (OTC) contracts was $ 683.7 trillion at the end of June 2008. This is an amount equivalent to more than ten times world output.

With the increased securitization, capital could be turned over many times faster than before, with a resultant rise in profits. Mortgages were increasingly financed without any attention on the capacity to pay. There was some sort of win-win situation, at least, temporarily. There was consumption boom in US with widening trade deficit which in turn was paving way to countries like China, Japan, Germany and other countries to augment their exports. These countries then used to invest their increased dollar reserve in US so as to facilitate it in funding almost 2 billion dollar trade deficit every day. Although this facilitated huge capital accumulation, this was basically overvalued capital or wealth lacking back up of real values and genuine profits. Such a highly unstable financial capital abruptly evaporated once the real state of conditions of the housing bubble came out in public. Now such a route of profit appropriation has collapsed with severe crisis in the capitalist system after the Great Depression of 1929.

One important point to notice is that US could afford huge trade deficit simply because of dollar being an international reserve currency with room to print money without back up amidst no alternative international currency in sight. Equally important point is that as there is no built in mechanism to resolve global liquidity crisis by means of the dollar.

Notwithstanding the symptom of easing recession, the bail out and fiscal stimulus policy packages are primarily targeted to the big corporate houses. A noticeable factor is that out of the bailout and fiscal stimulus packages, almost $ 10 trillion is being spent by relying on deficit financing again primarily through printing dollars. Its effect again will be transmitted to the global economic system. This not only enables the US to pull global resources or wealth freely but also contributes to aggravate instability in the global economy. It will be just like a zero sum game. Therefore, unless deep rooted reforms are carried out in the global economic system with topmost priority on phasing out of dollar as an international currency with certain stipulated time frame to be replaced by SDR, the crisis will emerge and reemerge with devastating impact on the economies like ours.