Talks About Global Currency Gain Traction

Many thanks to my friend LauraB for pointing this out:

In an exchange with her I added my 2 cents to the ongoing rumors about the possibility of a move toward a global currency:

It is certainly true that there are many things hinting at something like this. The central banks executives and finance ministers keep meeting on a regular basis now. If the European elites were able to sell to the European public the flawed idea of a pan-European currency, what keeps the international elites from doing the same to the world population? But in order for something like this to appear even remotely palatable a long worldwide PR campaign will be necessary.

Right now, with all the trouble that these clueless people are dealing with, I just don’t see how they can stack on top of that the project of unifying the currencies of the world into one world currency. If anything, I think this will be a very very long term project.

If you look at the description of SDRs (http://en.wikipedia.org/wiki/Special_Drawing_Rights), they already possess a lot of the features that the European Currency Unit had in Europe as a prelude to the Euro.

I expect that if there is to be a concerted move toward a world currency, it will coincide with more and more talk about SDRs in the news and in the government propaganda all around the world.

Laura points out the following on this matter:

Good call on the increasing talk in the media of Special Drawing Rights (SDRs) before the push for a global currency.

Here are two articles from last week that mentioned SDRs:

1. U.N. panel says world should ditch dollar
http://www.reuters.com/article/newsOne/idUSTRE52H2CY20090318?pageNumber=2&virtualBrandChannel=10452&sp=true

According to this article, the U.N. Commission of Experts on International Financial Reform will recommend to the U.N. on March 25, 2009 that “the world ditch the dollar in favor of a shared basket of currencies.” Under the heading “Good Time”, U.N. panel member Avinash Persaud talks about using something like an expanded SDR as the reserve currency.

This is the link to the accompanying video of the interview with U.N. panel member Avinash Persaud, who is also chairman of consultants Intelligence Capital and a former currency chief at JPMorgan:
http://www.reuters.com/news/video?videoId=100494&newsChannel=wtMostRead

2. China backs talks on dollar as reserve -Russian source
http://www.reuters.com/article/usDollarRpt/idUSLJ93633020090319

According to the article, ” The source said the Chinese paper envisaged the International Monetary Fund’s Special Drawing Rights (SDRs) being first assigned a role of a clearing currency on some transactions and then gradually becoming the main global reserve currency.” The article also mentions that the U.N. panel is looking at using expanded SDRs as a new reserve currency.

The article says that Russia plans on raising the issue at the G-20 meeting on April 2, 2009. According to the article, “The source said that India did not object to the discussion but was not prepared to take the lead. The source said South Korea and South Africa backed the idea, while developed nations were not “allergic” to it.” The Russian Finance Minister told reporters that he thought “it would take up to 30 years to create a new super-currency.”

A global currency would aggravate all the disastrous effects of national central banking enormously. There can’t be any doubt that the idea is nontheless becoming more and more palatable to world leaders. No matter how distant its potential fruition, individuals worldwide need to make sure these harmful aspirations are nibbed in the bud and reject the idea unconditionally.

What we need is the exact opposite. The global monetary system needs to become less centralized so as to increase and enhance regulation. We do need more regulation, not more government decrees, monopolies, and power that lead to less regulation. A global central bank would be just that. There simply is no better regulation of the global money and credit markets than Gold’s Honest Discipline. The history of money has shown us this time and again.


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10 thoughts on “Talks About Global Currency Gain Traction”

  1. From Bloomberg today:

    China ‘Super Currency’ Call Shows Dollar Concern
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aiS1BUOMzWdw&refer=home

    From the article,”Central bank Governor Zhou Xiaochuan yesterday urged the International Monetary Fund to create a “super-sovereign reserve currency.” …

    The global crisis raised the question of which reserve currency would secure “global financial stability and facilitate world economic growth,” Zhou said. He proposed expanding the use of the IMF’s Special Drawing Rights, which are currency units valued against a composite of currencies.

    “The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies, and gross domestic product may also be included as a weighting,” said Zhou. …

    “The world economic landscape has been changed since the establishment of the SDR 40 years ago,” said Ha Jiming, chief economist at China International Capital Corp. in Hong Kong. “Specifically, no such reserve currency would make sense without the yuan being included.”

  2. Hold on… Now, China is talking about one world currency in that the chinese currency would be a global medium of exchange. Currently the US dollar is a global medium of exchange.
    So there is already, in effect, one international currency, and in some countries (Zimbabwei comes to mind) the only currency is the US dollar. It’s only now however that Americans realize this fact.

  3. Where are you taking that from? I wrote above that “the Chinese paper envisaged the International Monetary Fund’s Special Drawing Rights (SDRs) being first assigned a role of a clearing currency on some transactions and then gradually becoming the main global reserve currency.”

  4. It looks like another desperate attempt to reflate the bubble on a global level. But what are 40 billion dollars or so in relation to the trillions of credit that are evaporating all around us (http://www.economicsjunkie.com/total-credit-and-loan-contraction-reaches-1-trillion-volume-down-2-3-from-1-year-ago/)

    Nor do I think that this in itself will do anything to devalue the dollar. In fact, it only reaffirms the dollar’s dominance in the basket. If the dollar continues its devaluation then it will be because of investors’ continued belief in a coming dollar inflation. It will end as soon as people realize that this thesis was completely misguided.

  5. “In December of 1994 such reserves were $61.36 billion; in 1999, they $41.7 billion; in December of 2007, they were $42.7 billion.

    Normally, as the overall quantity of money in the economic system increases, bank reserves increase more or less in proportion. The fact that reserves were almost one-third lower in December of 1999 than in December of 1994, and then barely higher in December of 2007 than they were in December of 1999, despite major increases in the quantity of money over these years, is a major anomaly.”
    http://mises.org/story/3556

    reflate the bubble?….wont devalue the dollar??

    i dont know if what you say is true or not..the linked excerpt i posted above speaks of a major anomaly….declining reserves amongst significant money supply increases.
    if bubble money is going to be reflated as you say….what specific thesis is misguided?

    from the same link “…..particular branches of industry were greatly overexpanded relative to the rest of the economic system, resulting in a subsequent major loss of capital. In the stock market bubble, the malinvestment was mainly in such things as the “dot.com” enterprises that later went broke. In the real estate bubble, it was in housing and commercial real estate.”

    if the fed/bank dollar manupulation has caused these bubbles…why would it not be devalued in investors eyes? is the information untrue?

  6. 1. I didn’t say they ARE reflating the bubble. I said they are trying to. And they will fail.

    2. Of course the Fed induced credit expansion has caused a major Dollar devaluation. But this has already happened throughout the better part of this decade. I would remind your that the dollar hit a low in April 2008 and is still up since then. It has remained within a trading range.

    3. We are now on the other side of credit expansion: credit contraction. In a global economy where the Dollar has served as the reserve currency and where credit is contracting while everyone scrambles for money to pay off outstanding debts, there is likely to be more demand for Dollars sooner or later, no matter how hard the Fed and the Treasury try to “moderately” devalue it.

  7. Hi Nima,

    I agree with you that the $40 billion is just a drop in the bucket compared to the trillions in credit currently being destroyed and I still believe, as you and Mish, that we are in deflation. Any attempt to reflate the bubbles will be fruitless because consumers are not only tapped out, but under water and unemployed. Consumers aren’t borrowing and spending and the banks are still in no condition to lend even if there were any willing and able borrowers. It seems to me that because credit is being destroyed faster than they are printing money, the dollar should be gaining strength, but it is depreciating nonetheless. (As an aside — do you think that the push for health care and cap and trade legislation is just another attempt to inflate a new bubble?)

    Because credit is currently being destroyed faster than the Fed can get new money into the system, my personal concern about the dollar right now is not inflation, but that it will be worthless because of a loss of faith in the government due to the corruption and lack of enforcement of property rights. Because the government is not only ignoring the lawlessness of the banks/mortgage brokers/etc., but is actively aiding and abetting them by violating laws (e.g. contract law (think interfering with priority in the GM bankruptcy and attempting to rewrite mortgages) and passing laws that violate the Constitution (e.g. bailouts, stimulus, etc.), I am afraid that everyone will lose confidence in the government and thereby the dollar, rendering it worthless. Although everyone is pointing fingers at the U.S. right now, other countries have the same problems (real estate bubbles/ high unemployment) and their governments are doing the same things that the U.S. is doing, so aren’t their systems just as corrupt and fiats just as worthless? Wouldn’t a shift to the SDR be just as bad as, or worse than, what we have now? Wouldn’t it just be an attempt to extend and pretend; to keep the con-game going under a new name? Isn’t this why the price of gold is going up — i.e. that people around the world are losing faith in the ability of their governments to protect their property rights? It seems the only place to turn to protect your property/savings would be gold and/or silver, but you can’t buy groceries with gold and besides what would stop the government from confiscating gold again. The government is using exigent circumstances to justify breaking the laws, even though enforcing the laws is the solution. The only way to rid the system of uncertainty and restore confidence is, as Denninger would say, to stop the looting and start prosecuting. Unfortunately, that doesn’t seem to be the way things are going.

    Anyway — the first thought to cross my mind when I saw the title of the Zero Hedge piece was that the U.S. was increasing its SDR holdings in anticipation of the SDR becoming the global reserve currency, despite government claims of a “strong dollar policy.” Do you think that this is part of the transition? Also, I just saw this from Bloomberg: Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says (Update1) http://www.bloomberg.com/apps/news?pid=20601109&sid=a_A5nqmw9Dq8 The articles that were out when we first started discussing this subject were talking about it taking 30 years for the SDR to replace the dollar as the reserve currency. But based on what is happening, do you think it will happen a lot sooner?

    Sorry for the long/rambling post — I’m having a hard time expressing my fears/concerns concisely today.

    Thanks,

    Laura

  8. Apparently I’m not the only one concerned about a loss of faith in the government. After I wrote to you yesterday, I found this entry from George Washington’s blog in which he presents an essay from the Wharton School of Business on the psychological causes and solutions to the economic crisis: The Economy Will Not Recover Until The Perpetrators Of Our Crises Are Held Accountable http://www.washingtonsblog.com/2009/05/economy-will-not-recover-until.html

    According to the article the public has lost trust in the government because we expected to be protected from the abuses that have occurred and the economy cannot recover until trust is restored by holding the perpetrators of this economic crisis accountable. The article points out that, rather than holding the perpetrators accountable, the government is doing everything in its power to paper over the crisis and avoid responsibility.

    David Sachs from the Psychoanalytic Center of Philadelphia said that “the public, expecting to be protected from such abus[ive financial practices], has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous.””

    George Washington says about the comparison to 9/11: “Indeed, the government’s responses to both crises have been similar:

    * After 9/11, no one was held accountable for something that – at the very least – should have been prevented

    * Instead, a new super-bureaucracy was created (the Department of Homeland Security), just as some super-risk-regulator is now being proposed for the economy

    * And as with 9/11, the government is creating a commission which will be sure not to “assign blame”

    As the Wharton essay says, the economy will not recover until the perpetrators of our crises are held accountable. But – unfortunately – the government is doing everything possible to avoid holding anyone accountable.”

    I also found this from George Washington posted on Zero Hedge: The Ongoing Cover Up of the Truth Behind the Financial Crisis May Lead to Another Crash http://www.zerohedge.com/article/ongoing-cover-truth-behind-financial-crisis-may-lead-another-crash

    As I said, the public expected the government to uphold the laws, protect their contract/property/Constitutional rights, and hold the banks, mortgage brokers, etc. responsible for the fraud that they committed. Instead the government not only helped cover up the crimes, but joined in the looting and broke the laws themselves while arrogantly telling us that we did not understand the complexity of the problems and that they were doing these things against our will for our own good (e.g. passing unconstitutional bailouts despite overwhelming public dissent). Because the laws are not being reliably upheld, there is no certainty or safety. People don’t trust that the fruits of their labor, as represented by their hard-earned dollars, will be protected, so they are turning to gold as a way to preserve/protect what they have left. But what will stop a corrupt government that has broken so many other laws from taking that too? The trust is gone. I agree with the conclusions reached in the Wharton essay — until the perpetrators (both in Congress and the financial sector) are held accountable, we cannot have an economic recovery.

  9. Yes, I agree wholeheartedly. I also agree with your suggestion that if the Dollar were to crash, it would be due to a lack of trust in the US fiat system (only).

    But then, you have to keep in mind that there are fiat systems all over the world, most of them even more lavish than the one in the US. Most of them have in fact been built on top of the US fiat money system. If people lose trust in this system, I think the the Dollar (or maybe the Dollar AND the Yen) would ironically act as the last safe fiat reserve currency.

    All fiat currencies are going to zero in the long run. Just because the Dollar does better against the Euro or the Pound, that doesn’t mean it will do well against gold also.

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