Financial Reformation: Call for the Separation of Four Powers

Xiaomu ZHOU
Bachelor of Science, Master of Accounting

Sydney NSW AUSTRALIA



ABSTRACT
This paper analyses the reasons for the current global financial crisis, and the monetary environment after the being out of markets of the gold and silver currencies. The paper discusses the properties and characters of legapers and advances a legislatized plan of the legaper regime. It holds that the financial management must implement the management pattern of the separation of four powers of the legislature, the executive, the accounting and the financial enterprises.


KEYWORDS
Finance, ‘blackhands’, legapers (legal paper), powerful weapons, separation of four powers




In Sydney on 26 May 2009



During the late 1950s and early 1960s, the farmers’ raising chickens was not allowed by the Chinese government. Many farmer families did it secretly. They did not bring the chickens to the market, but kept for eggs, as the nutritious food for the old and the young in the family. However, the cries the chickens made after laying eggs were so loud, that it deeply worried the farmers: Were it notifying the government to come to punish them?!

Production is the basic right of a man to make living. When the right to produce was as well limited, men started to realise the preciousness of ‘production’, and started to know to make full of it: As long as there were possibilities, they would struggle for the opportunities to produce to make profits. No matter how difficult and hard it might be, even with ten times of the normal work, the Chinese would be willing to do it.

In 1978, Mr. Xiaoping Deng rose to power. He declared that the farmers were permitted to raise chickens and pigs etc. to engage in the sideline occupations. People were encouraged to accumulate wealth by production. The Chinese people’s eagerness for producing, like the flood behind the opened sluice-gate, poured out. And hence, here is the high economic growth in China today.

Until 1990s, the Chinese had one more way to gain wealth: To buy and sell shares. To engage in the stock markets may lead to one-night treasures and money could be earned extremely quickly. There was a worker with the surname of Yang from Shanghai, who started with several thousands of Chinese Yuan, and just three years later, had become a millionaire. He was named Millionaire Yang, and well-known all through the country. This was a great opportunity that the Chinese, who had been scared of poverty, dared not even dream. Respectively, they took their money and joined the crowds engaging in the stock markets. Some brought with all their savings; some with the superannuation; and some sold their property or even borrowed to get into the stock markets. In 2007, the amount of the trading accounts in the Shanghai Stock Exchange (SSE) reached as high as 120,000,000. On 16 October 2007, the SSE Composite Index rose to the record-breaking of 6124 points, a vigorous jump of more than six times compared to the 998 points on 06 June 2005. By the end of 2007, the total market capitalization of the two sharemarkets in Shanghai and Shenzhen had been 32.71 billion Chinese yuan, around 131 per cent of the GDP for 2007. All of a sudden, there came into existence several world number one enterprises by their market value. The market value of Industrial & Commercial Bank of China Ltd exceeded that of Citibank N. A. (U.S.) and became the largest bank in the world. Aluminum Corporation of China Ltd, with the market value of more than that of Alcoa Inc. (U.S.), became the world largest aluminium company. The market value of China Shenhua Energy Co. Ltd was greater than that of BHP Billiton Ltd (Australia) and became the world number one in the coal area. The market value of China Vanke Co. Ltd, however, had exceeded the total market value of four of the U.S. large property companies. On 05 November 2007, at the opening of the share market, the market value of China National Petroleum Corporation (CNPC) set the record by more than US$1 trillion, similar to the total market value of Exxon Mobil Corporation (U.S.), Microsoft Corporation (U.S.) and Citibank N. A. (U.S.); and suddenly became the world largest enterprise. The Chinese, who have been invariably self-inferior, shallow and chatting away, were psychologically satisfied and proud to the extent that they had never experienced.

During 2006 and 2007, the amount of the capital raised by IPO on the A share market in China had exceeded the total amount raised on the New York and London stock exchanges (Yuan, December 2007), which had, under the circumstances of untimely released information and unfair rules of games, fraudulently picked the pockets of the investors.

On 19 September 2008, following its already declining passage, the SSE sharemarket opened at low points and continued the pattern. The Composite Index dropped to 1802 points. Then it started suddenly to jump to 1895 points till the closing. The experienced investors realised immediately that there would be important policies to be announced. But most of them dared not act rashly, for there had been too many such kind of cheat. But this time it was not a cheat. Early next morning, the China Central Television announced the information that the government would readjust downwards the stamp duties of securities trading. The sharemarket opened at high points and kept going up. Those who could know and perceive things in advance with the special private relationships had comfortably and deservedly enjoyed the privileges.

The Chinese stock markets are the markets guided by the government policies and manipulated and controlled by the securities dealer institutions. Every time before they are going to take actions, they will in advance disclose the information about the objectives and plans etc. to their relatives, friends or other people with relationships, to enable them to buy or sell beforehand, which is described by people as ‘the rat barn’.

There is a public company named China Pacific Securities Company Ltd. It was registered in Kunming Province in December 2003. The company had been in deficit just after its opening: In 2004 it lost 16,234,000 yuan; and in 2005 200,512,600 yuan. In 2006 it made a profit of 131,921,900 yuan (Yi, 2008). On 28 December 2007, it listed in the SSE and the code was SH601099. Its closing price on the day was 41.92 yuan and the market value was over 63 billion yuan. What surprising is, neither had it been checked and ratified by the Department of Public Offering Supervision of China Securities Regulatory Commission (CSRC), nor had it gone through IPO, which was simply not keeping with the listing procedure. It also did not meet the listing criteria of enterprises, but listed especially quickly and smoothly.

China Securities Regulatory Commission (CSRC), which formulates the regulations, is also in charge of the power of ratifying the enterprise listing. It administers IPO and selects and appoints sponsoring brokers and underwriters. This process is known as the first market. Then it comes to the secondary market; that is, to list and trade. The general investors can only carry out the stock trading on the secondary market.

The code of China National Petroleum Corporation (CNPC) in the SSE is SH601857. Its IPO offer price was 16.70 yuan and the capital raised was 66.2 billion yuan. This was the result of the issue on the first market by the sponsoring brokers and the underwriters. When the shares come to the secondary market, the difference between the opening market price and the IPO offer price will all become the profits of the sponsoring brokers and the underwriters on the first market. So all of a sudden, there had been many famous persons and good speakers who, by the way of the media such as TV and newspapers and all the other possible opportunities, gave speeches and organised lectures to publicize and promote the CNPC shares. It worked indeed: On 05 November 2007 the opening price of CNPC was 48.17 yuan and the closing price on the day was 43.96 yuan. The sponsoring brokers and the underwriters had easily gained a profit of over 100 billion yuan. ---- As the sponsoring brokers had had such a big bite of the profits, what responsibilities should they have taken regarding the quality of the listed firms that they recommended? No any regulation could be found. ---- These profits were much greater than the amount of the capital raised by CNPC, which was truly coining money and had been gained even more quickly than by robbing banks. Therefore, striving for being sponsoring brokers and fighting for underwriters become the main battles in the Chinese capital market, and the commander at the front of this battle-field is CSRC. The Chinese government is purposefully fostering its own ‘Wall Street’.

The odd and true stories of getting great riches in the Chinese stock markets have rapidly aroused explosive repercussions in the society. The workers are not content with their work any more; the farmers do not want to cultivate the land. To be corrupt and degenerate as an official is no longer a shameful affair; the private use of the public rights has become fashion. There have been the monopoly groups that deal in securities, banking and insurance etc., the privileged groups with the combined power of the government and enterprises conducting the businesses such as water, electricity, petroleum and land, and the grey income receivers who serve as the agents between enterprises and the relevant government departments. They emerge in an endless stream, and cleverly transform the administrative and public resources into the interests of small groups and individuals. This tendency of crazily collecting money has even extended into the sacred areas of the compulsory education and the public health. The problems of the unreasonable educational fees, the difficulty in consulting doctors and the high expense of seeing doctors etc. have been imperilling most of the Chinese and are pressing the one billion Chinese farmers and workers to the corners.

The social custom in China is changing from the power supremacy to the monetary supremacy.

Most of the practice in the Chinese capital market has been learnt from Europe and the U.S.: To turn the western privately operating rules into the regulations of China Securities Regulatory Commission (CSRC). ---- The Chinese government and the western privately owned companies have found the same manner in this respect. ---- Something should go wrong sooner or later. Surely, the crisis had come. On 16 October 2007, after reaching the 6124 points, the SSE Composite Index turned around and dropped freely, like without gravity. Until 28 October 2008, the index dropped 72.8 per cent to 1664 points. The market capitalization had disappeared by over 20 trillion yuan; the middle-class that had just emerged in China was strangled with no trace.

What is different from the west, the Chinese sharemarket disaster hurt only most of the general individual investors. The few business institutions benefited instead, as it was just them who, by their superiority in funds and information, had hatched and created the sharemarket disaster. They bought in shares at the lowest prices; then pushed up the prices and sold out, to hit and suppress the stock markets. The circle continued and just several rounds later, the national wealth would have been amassed into the hands of the small groups of people. In this global financial crisis, the number of the rich in China with tens of millions of yuan and the amount of their wealth did not decrease, but increased instead. According to the ‘Report on the Private Wealth in China’ jointly released by China Merchants Bank Co. Ltd and Bain & Company (U.S.) on 30 March 2009 (Feng, 2009),

‘In 2008, the number of the high net income people in inland China with the private available for investment capital of over 10 million yuan was around 300,000. (About 2.3 over ten thousand of the population of inland China - note by the writer) Altogether, they had possessed 8.8 trillion yuan of the available for investment capital…….It counted 29 per cent of the GDP of 30 trillion yuan for 2008 in China.’

Thieves are immoral; while great bandits may be meritorious. The greatly well-known pirate in those years, Francis Drake, was just the hero who had contributed to the defeat of the invincible Spanish Armada by England. Actually, how hard it is to be a pirate! And it would be even harder to start more overseas colonies. Not only would there be the rebels from the colonial people to deal with, but also the battles for supremacy between the several colonial powers to be faced with: There had been,
in the 16th century the Anglo-Spanish War,
in the 17th century the war between England and Netherlands,
and in the 18th century the war between Great Britain and France.

In 1776, the America declared independence. Besides the pain suffered from losing this piece of land, Great Britain however recovered its losses from the trade with America. Suddenly seeing the light, Great Britain found as long as the doors of the markets of all the countries were opened to the world, free trade could develop; and by setting up in advance several overbearing clauses in the trade regulations, it could easily obtain rich and generous profits. There was no need to engage again in the vexed colonies. And this is also the significant reason that why afterwards Britain did not interfere into the independence of the colonial countries such as Australia, India and South Africa.

By the late 20th century, the financiers on the Wall Street in U.S. found the even more relaxing way to earn profits. With the position of international account settlement and reserve of the US dollars, they concentrate efforts directly on the money itself, and manipulate and control the monetary markets and the capital markets. Then by just some taps on the computer keyboards, they can amass the wealth worldwide.

Capital markets are great invention. They can activate capital and enhance the liquidity. They have the great function of direct funds raising. This is a way to develop the economy by evoking people’s greediness of money. It affects effectively at the current stage of civilization. As regards the sustainable development of the world industry and science and technology, the contribution of capital markets could not be ignored. The Chinese have been struggling for thousands of years; the more they struggled, the poorer they were. Only in the recent thirty years, it has rose up from the verge of being bankrupt and leaped to the power today. The contribution of capital markets could not be ignored.

Capital markets possess strong life force, which lies in their internal constructive properties. There are at least five perspectives.
1. To juxtapose labour and natural resources with funds as capital.
2. To encourage the investment of capital into reproduction and lay stress on the development of the entities economy.
3. To encourage new ideas in science and technology and continually promote the value of production wisdom.
4. To encourage the merging and reorganisation of enterprises, the large-scale and specialised production and the efficient management.
5. To impel social distribution to gradually leaning towards the producers.

Now, these internal properties have been sometimes far from been functional. ---- The day when these properties and superiority were playing fully their roles, the time it would be for the mankind to enter into a new stage of civilization. ---- The capital markets today are often manipulated and controlled by money. To conduct the speculations by earning money with money has to some extent changed the quality of money of not creating wealth, and hurts the development of the economy entities and the science and technology.

The full name of capital markets should be the securitized capital trading markets. In the markets of early times, the entities capital with relatively good economic results was securitized and then it entered the markets to be traded in the form of securities, i.e. the usual stock markets.

On this basis, the financiers on the Wall Street in U.S. have audaciously brought forward new ideas. They turned some capital with the predictable cash flows into securities as well, such as Mortgage-Backed Securities (MBS), and also invented the financial derivative products, such as Asset-Backed Securities (ABS), Collateralized Debt Obligations (CDO) and Credit Default Swap (CDS). They are all brought to the capital markets to be sold. ---- To sell the future and invest in the future; to try to convert all the possible income in the future into cash. However, the future income belongs to the descendants originally; the affairs relating to the descendants need to be specially proved with care.

Capital markets have the magic of turning stones into gold by just touches on them and coining money. They attract the attention and money all over the world. More and more people, separated from the positions in the production and the science and technology work, are discussing capital markets; more and more financial institutions buy in volumes of the American financial derivatives. ---- In front of the huge temptation of money, few minds is clear.

The stock and bond markets are both promoted by capital. Imagine there is such a small group of people. They are masters of monetary policies and also have in the hands great amount of funds and shares. They can even manipulate and control the capital market. In the appropriate time, they can greatly grant credits to push up share prices and create intentionally the sharemarket bubbles; when the bubbles are big enough, they will sell out their shares and simultaneously cut off the funds supply to force the fall of the share prices. Then when the prices are comparatively low, they will buy in again. The circle continues and the wealth will pour into the pockets of these a few people like floods. But only it needs to be operated and controlled carefully, with the proper degree that will not exceed the extent to which people can endure. However, even with the greatest caution, there may be faults: There comes a little fault every eight to ten years, which leads to small disasters, and is called the financial crises; every around one hundred years there comes a big fault and is called the great depression. The fact shows there are indeed the ‘blackhands’ in the capital markets.

On 15 September 2008, Lehman Brothers Holdings Inc. declared bankruptcy.

Just after the Chinese sharemarket disaster, the great global financial crisis which was caused by the U.S. sub-prime residential mortgage loans came with a terrifying force, and rapidly extended to the entities economy, which had almost made another global economic depression.

In this great financial crisis, the U.S. reacted timely. It implemented the financial supports. Until 10 April 2009, the total amount that had been injected was above US$5 trillion, and European Union has pumped altogether around 3 trillion euros. The governments of many other countries have also correspondingly injected large amount of funds to rescue the markets.

Since the Great Depression in 1930s, there have been constant financial crises. It comes every eight to ten years and they all result from the accumulation and shattering of the sharemarket bubbles, which has showed that there are vital defects in the international financial system. And the origin is money.

In ancient times, grain could be used to change for salt or cloth: To change goods into goods. Although it was troublesome, it was fair and reasonable, with the willingness from both sides.

Later on, gold and silver were used as the medium to undertake trading and there came into existence the gold and silver currencies and the banks, to make it convenient to trade. The scale of trade extended correspondingly. Because of the value of the gold and silver currencies themselves, anyone could make, as long as you had gold or silver. But as gold and silver were rare and usually stored by people, the amount decreased. Their circulation amount could not always meet the demand of the GDP growth and it had affected the economic development.

On 15 August 1971, the U.S. President Richard Nixon declared the abandonment of the exchanging the US dollars for gold, and from then onwards, the US gold currencies had become the US notes.

There are two properties of notes. One is that they are easy to print. Everyone has the capacity to print. There is a problem of whether they are real or false. What are real notes? And what are false notes? There is merely one answer. Only the state power has the capability to print notes and all the others are false; and also only the state power has the capacity to employ the state machinery, for example, armed forces, police and jurisdiction, to take strong measures against false notes and protect the real ones.

The second property of notes is the issue amount of notes. According to Principles of Economics, it follows the equation of the quantity theory of money (Mankiw, 1997, pp. 616-618): MV=PY, among which, M means the quantity of money; V is the velocity of money; P represents the price level; and Y is the real GDP.

Under the conditions that V and Y are relatively stable, P changes proportionately with M. That is to say, the more notes are issued, the higher the price index would be; and this is inflation. This property makes the disappearance of the neutral quality of notes as a form of money. The essence of inflation is to dilute national wealth: To devalue the notes in the hands of the nationals. Hence, the notes issuers could extract public wealth by the way of enlarging the note issuing, and so change the social distribution.

When the inflation is serious, the prices of food and other living necessities will rise dramatically; the industrial products, for example, motor vehicles and machinery and equipment, and the art work such as script and pictures will be gravely unsalable, which may lead to the close-down of factories, the increase of unemployment, the social splits and even the outbreak of wars.

During 1992 and 1993, to repay the debts, the Russian government had recklessly printed and issued the notes and caused the great devaluation of Rubles. The 1,000 rubles that could have afforded a two-week holiday in the Black Sea was devalued to being only able to buy a single hard candy. The middle-class lost all their property and the huge amount of the public wealth was totally grabbed. Russia, which had been the world second power, was suddenly as such reduced to a second-class country.

‘Germany after World War I experienced a spectacular example of inflation.’ As what N. Gregory Mankiw (1997, p. 610) stated in his Principles of Economics, ‘The price of a newspaper rose from 0.3 marks in January 1921 to 70,000,000 marks less than two years later.’ Most of the Germen were looted completely and thereafter the Jewish bankers were hated, which had sowed the seeds of the emergence of Nazi, the massacre of Jews and the World War II.

Note issuing relates to the state security and the national livelihood, which is indeed where the national lifeblood lies; there is no tolerance of the intervention of any business group or political group.

In Section 8 of Article 1 of the United States Constitution, it states that Congress has the power, ‘To Coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.’

There should be a definition of this special kind of notes: They are printed and issued under the law issued by Parliament, and Parliament at the same time fixes their qualities such as the specific patterns and sizes. Their credit value is guaranteed by the national finance. ---- This kind of notes should be called Legaper (legal paper). Different from gold and silver currencies, Legaper is the symbol of national wealth. It has no value by itself, and is also not a commodity. It only has the related value under the guaranty of relevant laws.

If armed forces are the powerful weapon to defend the territorial completeness of a nation and the life securities of its people, then legapers are the powerful weapon to guarantee the national wealth and the state economic development. One side is armed forces, and the other side legapers: They are the left and right hands of the state power.

Who dare to possess the state powerful weapons? Everyone wants to possess them! The people who privately have armed forces are called warlords; the people who manipulate and control legapers are called plutocrats. The warlords fought fiercely with each other to be the lord of the world. After thousands of years of fights, there has come a new prospect of democracy and judiciary. After the practice of over 200 years, now democracy and judiciary have been the general trend and the will of people. What the democracy and judiciary guarantee is human fights. Human fights are paramount. Until today, the only thing that can practically implement democracy and judiciary and protect human rights is states. Any of the tactics of the globalized economic development must be discussed in the form of states, to find the effective criteria of the coordinate development of the international economy. There is no tolerance of the direct manipulation and control of the economy by finance; any economic conduct and means that overstep the state power are not tenable.

As to the management of state politics and armed forces, after the hardship of thousands of years, every country has come to its own systematic theories, strategy and methodology; and there has developed the international relationship criteria of democratic consultation and peaceful coexistence. Today when gold and silver currencies have been definitely out of markets, the Bretton Woods system has ceased to be effective; it is the time to reorganize the management regime of legapers.

Banks originated in the Renaissance times; they were derived from the mutual assistance of providing loans between the people in the commercial and industrial areas in Italy. The traditional business of banks is to attract savings deposits and then loan them out, to earn one’s own money by borrowing from others. But there have been the problems of the deposit safety and bank runs that could not be solved so far.

Savings deposits are part of private property, while private property is protected by law and part of the human rights guarantee. Thus, the safety of deposits must be guaranteed. The banks of U.S. Federal Reserve System solve the problem of bank runs by the way of deposit reserves, and the deposits in other U.S. banks are insured by the Federal Deposit Insurance Corporation (FDIC). But in the 2008 great global financial crisis, the insurance companies were themselves in danger, so the U.S. President George W. Bush had to declare in person that (The New York Times, 2008), ‘And through the FDIC, every savings account, checking account, and certificate of deposit is insured by the federal government for up to $100,000.’ to quieten the unrest of bank runs. Just after, the Chancellor of Germany Angela Merkel, the Australian Prime Minister Kevin Rudd and the presidents of some other countries respectively announced that the governments would guarantee the safety of all the bank deposits.

Because of bank runs and bad debts, the private banks in olden and modern times all over the world could not last long. Among the Chinese private banks, from the ones in Shanxi Province to the ones of the businessmen in Zhejiang Province, the bank owed by Xueyan Hu was the largest; the larger the scale was, the more miserably the bank went bankrupt. The banks in Europe and U.S. are on large scale, and almost all private. In this great financial crisis, had not the governments injected funds timely and the presidents appeared personally to quieten the unrest of bank runs, no one bank could have survived.

Bank runs result from no trust. To put one’s own money into the pockets of others, no one can relax unless there are specific legal guarantees. ---- There has been so far no legal guarantee with the national savings deposits, which indicates the incompleteness of the exercise of the democracy and judiciary. ---- National wealth must be managed by the nationals themselves; and this is essential to the legislatization of the financial management.

Another important condition of the legislatization of the financial management is the implementation of the management of the separation of four powers of the legislature, the executive, the accounting and the financial enterprises, to ensure the comparative segregation of the monetary markets and the capital and the commodity markets. The segregation should be in not only their organisation and personnel, but also the businesses, to strictly prevent the situation that the future and capital markets be manipulated and controlled by money and its policies. There is no permission of the manipulation and control of the entities economy by finance, just like the armed forces cannot intervene in and control the politics.

There is a side of insatiate desire in human nature, which is centrally showed in the two areas of power and money. As long as there is possibility, he/she wants to control everything, decide everything, and enjoy everything, which has been extending into every detail. Only when the personal security and the life quality are under threat, the desire will be comparatively restrained, and this threat came formerly from the armed forces and the hegemony, and now is bound by the democracy and judiciary and the humanism. The power of democracy and judiciary has given the play of its roles in the political area, but in the area of economy, usually due to the influences of the huge temptation of money, many corners in the financial area have not so far shined with the light of democracy and judiciary. For example, the capital markets are often kidnapped by money, which has caused the constant financial crises; the people’s private property has been often grabbed. There should be an investigation into the number of the privileges in the financial field. Tax heavens, the financial leverage and the no supervision of hedge funds etc. are all privileges.

The financial reform is in imperative need. Call for the separation of four powers, to manage legapers well just like the way in which notes are printed that the many processes operate independently and are also relatively segregated, so to completely put the financial management on the course of legislatization.

The power of printing and issuing legapers returns to Parliament.

The legislative power of the legaper-finance system returns to Parliament.

Establish the special clause, to further stress the opposition of economic monopolies, not only the opposition of the vertical occupational monopolies, but also the horizontal occupational monopolies, especially the manipulation and control of the entities economy by finance. It stipulates the comparative segregation of the monetary market and the capital market. The relevant public officials cannot hold posts in each other’s office. They cannot hold positions of directors in enterprises, and misuse the official information for the personal interests or the interests of other groups. They cannot participate into the personnel organisation and business activities of the financial enterprises.

The banks and the securities exchanges operate specially. Their shareholders cannot hold shares of each other. They cannot hold shares in enterprises, and enterprises and investment funds cannot also hold shares of the banks and the securities exchanges.

Establish the special clause, to prohibit the flow of the bank credit funds into the stock markets.

Establish the special clause, to stipulate that the accounting system recommends directly the enterprise listing according to the relevant regulations and criteria. Correspondingly abolish the legally irresponsible system of the sponsoring brokers and the way that the underwriters buy in the newly listed shares in advance and then push up the share prices to resell the shares to the public, to return the right of price fixing of IPO to the markets.

Establish the special clause, to protect the savings deposits, and correspondingly rescind the way of deposit reserves. ---- This way cannot solve the problem of the deposit safety, but has aroused the chaos of creating new monetary quantity. ---- The safety of savings deposits is undertaken in the way of insurance by the insurance company subsidiary to the Treasury; meanwhile this insurance company acts as the reinsurance institution for other insurance companies, and it stops the disappearance of the domestic insurance resources.

Under the legaper regime, the government sets up the Central Bank. The bank accordingly and timely formulates the monetary policies and organises and manages the monetary market.

Under the monetary policy, the banking system participates in the activities in the monetary market. The duty of the banks is to provide the convenient and efficient monetary services for the industrial and agricultural production, the business trading and the social consumption. Services are their primary purpose, and they are not for profit.

Under the financial system, the governmental management department of the entities economy organises and manages the capital market. It lays down the listing criteria of enterprises, the trading regulations in the capital market, and the other relevant policies that conduce to the development of the economic entities and the science and technology.

Under the policies of the capital market, the securities exchange system operates and undertakes trading. It ratifies and arranges the listing according to the enterprise listing criteria and the recommendation of the accounting system. The forms of trading should be diverse and of different classes, to make it convenient for the investors and the listing firms to have varied choices.

One of the pillars of democracy and judiciary is the independent jurisdiction; correspondingly, one of the pillars of free market economy is the independent system of accounting, auditing and credit rating, for short, the accounting system.

The accounting documents produced by the accounting system are not only the legal basis of the payment of taxed, dividends and rewards and the improvement of management, but also the legal basis of the assessment of the qualities of capital or enterprises. After the confirmation of the enterprise listing criteria, the accounting system makes recommendation on the listing of an enterprise and takes the relevant legal responsibilities.

A nation is an independent economic entity; it is creating wealth all the time. This wealth is measured by legapers and managed and operated in the financial system; the financial system under the legaper regime is the ‘money bag’ of a nation.

The international finance is the investment and the capital raising that are carried out between countries, and the monetary settlement system of the economic activities such as commodity trading. It lays stress on the account settlement. There should be a monetary base of the monetary settlement. This base must be supranational and not be influenced by any country. It should be theoretically absolutely stable and will never be devalued. For example, the Special Drawing Rights (SDRs) that was created by the International Monetary Fund (IMF) in 1969 is a very good choice. SDR is called the ‘paper gold’. It is not issued and also does not need to be changed. It only acts as the account settlement base. The legaper of every country, for example, the US dollars and the Japanese yen, is compared to it every moment every day, and there generates a ratio amount. This ratio connects then all the legapers in the world to carry out the international account settlement. Therefore, every country could have its own legaper which is supported by its economic strength as reserve. Its legaper is segregated from those of other countries by SDR, and not tied up with the exchange rates and the interest rates of other countries, which will eliminate fundamentally the risks of foreign exchanges, and cut off the origin of the occurrence of the financial crises due to the speculation in exchange rates.

SDR has been used. On 02 April 2009, in the communique of the London Summit 2009 of Group of Twenty, it was clear that the IMF would allocate a new SDR amount of $250 billion to its membership countries; but it still takes time for the full application of SDR.

In 1974, the United Nation Convention issued the Declaration on the Establishment of a New International Economic Order, to try to have the developed countries make adjustment and make concessions regarding the arrangements of the international systems and policies, so to help the poor countries to develop the economics. It is stimulating. However, in the Doha Round of World Trade Organisation (WTO), the talks on the problem of the subsidies of agricultural products have been on for seven years, started from 2001 until today, and there is still no progress. The international trade has been carried on for thousands of years. The fair principles of open markets have been difficult to realise so far; it would be even harder to establish the new international financial system under the legaper regime to cooperate equally in the international finance.

Before the establishment of a new monetary base of the international settlement and its operating regulations, everyone and every country should keep a close eye on his/her and its ‘money bags’. He/She and It should maintain high vigilance against the speculators at all times: 1. to prevent the false legapers; 2. to prevent the possibly quickly devalued overflowed legapers; and 3. to prevent the capital being greatly washed away. As long as everyone and every country deal well with his/her and its own financial affairs, the international financial order would naturally and gradually get well. But it takes time and prices may need to be prepared to be paid.








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