One World, One Currency? 31 comments
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Zhou Xiaochuan of the People’s Bank of China recently proposed the creation of a new international reserve currency. Xiaochuan argues:
The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.
The bold letters were added by me. I find this statement profound. Zhou proposes a super-sovereign reserve currency managed by a global organization which could both create and control global liquidity. Zhou writes:
When a country’s currency is no longer used as the yardstick for global trade and as a benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances. This will significantly reduce the risks of a future crisis and enhance crisis management capability.
My interpretation is that Zhou (China) supports a global institution to manage the “one world currency”, and that international trade would be conducted in this currency. Commodities like oil and gold would be priced in the world currency. At the same time, each individual nation (or zone, as in Europe) would keep and maintain there existing currency and manage fiscal and monetary policy within their borders in order to keep their currency’s relationship with the one world currency at an optimal ratio reflecting existing economic conditions in that country.
China is obviously concerned to find themselves the biggest holder of US Treasuries. China also holds the world’s biggest foreign exchange reserves. Watching the US Federal Reserve, the US banking system, and the near (actual?) fraudulent rating of sub-prime debt as “AAA” by the rating’s agencies Fitch, Moody’s, and S&P which is the root of the current crisis, who can blame China for trying to figure out a way to insure their US investments? As they watch Congress enact bailout packages for the ultra-rich who don’t need the bailouts, at the expense of the US middle-class tax-payers who DO need the bailouts, the Chinese must have lost all confidence in US policymakers’ ability to think logically and act in an economically prudent fashion.
The Chinese know the result of continued massive US deficit spending will be a devaluation of the huge pile of US Treasuries they sit atop. They would probably begin a massive move out of US dollar denominated assets now if they thought they could do so without harming themselves. So, what better way to do so than to create a global currency, establish equilibrium, and then move out of the US dollar in a controlled and more leisurely pace? With the US dollar being the world’s reserve currency, such a move is not currently possible as the spotlight is too bright. However, with a global currency and separate exchange rates in Euros, Yen, Renminbi, and yes, US dollars, to the world currency, the Chinese investment in US dollars would be better insulated. They could also buy oil and gold in the world currency, whereas now these two commodities are traded (pegged) to the US dollar.
Don’t expect the central bankers around the world to support such a world monetary authority in public. The timing is bad too - a world in financial crisis is probably not the time for such a fundamental change. Geithner and Bernanke have apparently flatly rejected the notion. Note that Geithner first appeared open to the idea, but when the US dollar weakened appreciably, he made a “clarification” of his position. Was such a slip intentional?
It should be noted that the Chinese proposals came after similar suggestions from Russia. French President Nicolas Sarkozy has repeatedly called for the US dollar to be demoted as the premier currency. Nobel Prize winner and World Bank chief Joseph Stiglitz has also called for a new global currency. Authorities in Brazil and India have made statements supporting a world currency. What chance does the US have as a debtor nation to keep the dollar the world’s reserve currency when all the members of the BRIC contingent argue otherwise?
Despite all the discussions on an international currency, note that Bernanke tells Ron Paul that the discussions are not taking place:
Bernanke lying to Ron Paul tells me that the world’s central bankers are moving toward a world currency. This might be the reason Congress, the Federal Reserve, and the Treasury appears to be doing everything possible to weaken the US currency. That is, it will be easier to take away American Sovereignty in a crisis situation. Like so many other instances in the US over the past decade or so, the scenario reminds me of Naomi Klein’s awesome book The Shock Doctrine. It may also be the explanation I have been searching for why US policymakers don’t make the obvious and logical strategic decision to adopt robust natural gas transportation policies. Such a policy would drastically reduce foreign oil imports, cure our huge trade deficit, and thus strengthen the US dollar. However, could it be that our policymakers don’t want to see the US dollar strengthen? Are US policymakers are working behind the scenes to enable the “new world order” that papa Bush spoke about so many years ago? One world, one currency is an obvious way to accelerate that goal.
I think it is happening but will obviously take a few years. The fact that Bernanke lied and said no discussions are taking place when anyone who can read the newspapers knows otherwise speaks volumes to me.
How does an American invest for such a future? Gold. Silver. Oil.
Disclosure: The author owns gold, silver, and oil related investments.
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MadHedgeFundTrader: you say "what other currency are they going to use?" - i think that is the point isn't it? they want a *new* world currency that isn't as dependent on the US dollar (or as dependent on the financial and monetary policies of the idiots in washington). i think their proposal (remember, the russians, brazilians, indians, french, and germans have given strong to mild support) is very logical considering their investment in US treasuries. as far as moves to get off the US dollar in the past, don't you think times (and the US's financial standing) have changed considerably since then? the big reason the British pound was ditched in favor of the US dollar was US economic strength based on the US being the largest producer of oil. now, we import 65% and are bankrupt. times have changed my friend, would you not agree?
lucas: uranium huh? not so sure i want that in my pocket ;)
On Apr 05 01:22 PM Mad Hedge Fund Trader wrote:
> This proves the chinese still haven't figured out the world's financial
> system. Will people pleeease stop incessantly talking about the possibility
> of China dropping the dollar as a reserve currency? What else are
> they going to use? Monopoly money? Taiwanese dollars? Collectable
> postage stamps? At nearly $2 trillion, the Middle Kingdom’s reserves
> are so enormous that no other currency in the world could accommodate
> the switch, and no other security offers the necessary liquidity
> but Treasury bills. Chinese attempts to buy anything in size causes
> its price to immediately skyrocket, such as we saw in the relatively
> Liliputan commodity markets last year. The demise of the dollar has
> been predicted more often than the ditching of Microsoft’s Windows
> as the global PC operating system. Hate the greenback as much as
> you like, but there just isn’t any other alternative. I have been
> hearing these arguments ever since the US went off the gold standard
> in 1973. First there was a perennial Arab threat to price crude in
> a basket of currencies. Gee, they never seem to complain when the
> buck is going up. Then there was the speculated emergence of the
> “Yen Block”, in the eighties, back when Japan was dominating international
> trade and the yen was bumping up against ¥80 to the dollar. Remember
> the book “Japan as Number One? Ha! Double Ha! Then we got all that
> European whining after the launch of the euro when the weak dollar
> was everyone’s one way trade. Let’s face it, Europeans hate using
> someone else’s currency as the primary reserve instrument. Before
> the dollar, sterling was in widespread use. So rather than waste
> time discussing this anymore, let’s talk about something more important,
> like which of those two flies over there will jump off the wall first.
nmelendez: yeah, i didn't agree with that post either. his first sentence says the chinese haven't figured out the world's financial system, yet the chinese hold more foreign reserves than any other country. they are in the catbird seat
chux08: the article was written to promote discussion. i wasn't advocating one way or another, just that i thought the "powers that be" are working to make it happen.
Tetrapod: point well taken, but gold doesn't necessarily help the chinese when they are sitting on a mountain of US dollar based reserves. thus, their position.
Can this be implemented and yet not have the U$ collapse? Hardly. Just opening official talks would send the buck reeling. I think.
So let's just get the financial and economic crises under control and then let's see it the Americans can get their act truly together.
And let's not forget, as mad as this last expansion has been it has put millions of people in the developing world on their path out of dire poverty. There are and will not be quick fixes, but on balance the world is going to be better off as a result.
On Apr 05 09:23 AM longoil wrote:
> The concept of a global currency is not a new concept. In fact, Western
> European nations and Japan had their currencies pegged to the US
> dollar (which was a gold standard currency for central banks) from
> 1944-1971 as per the Bretton Woods accord. Things started to unravel
> when was a run on gold in the late 1960's.
>
> The problem with a global currency is who will set banking policy.
> The "Euro" only became possible because a strong economic union had
> existed between member nations, who have similar cultures and banking
> systems, for 35 years prior to the common currency being established.
>
>
> I don't see the US accepting a highly reduced role in setting banking
> policy in this new global currency. I dont think the USA will accept
> the influence of other substantial stake holders with diverse cultural
> and banking standards like China, Saudi Arabia, Japan, Russia, etc.
>
>
> Look what happened with the Euro, England could not agree to the
> EU central banking policy and wound up keeping its only currency
> in the end. If a global currency is established, I think the USA
> will follow the footsteps of the British and keep their own currency.
>
>
>
Michael: I too was wondering what gold would have to be, and I thought it would have to go much higher than $26K. The number would depends on the amount of international trade, wouldn't it?
Would that come down to New Gold Standard? But didn't countries who did not relax it during Depression suffer more than those who did?
And if it was composed of the four currencies and one would "misbehave", would that wreak more havock on international relations?
This is not as simple as it seams the more I think about it.
On Apr 05 11:21 AM Michael Fitzsimmons wrote:
> fireball: yes, awhile back a commenter and i worked through what
> the price of gold would have to be to back the US dollar. it was
> early last year, and if memory serves it was either $16,000 or $26,000
> an ounce (sorry, too lazy to go back and find out). regardless, it's
> obviously more than the current ~$900 and certainly a much larger
> figure now since the "bailout" and juiced printing presses started
> churning out US dollars by the boatload. farmland? you bet, get some
> chickens, some cows, plant a big garden, and put a big catfish farm
> on it. even better if you have some deer and turkey running around
> and can seed for ducks and geese :)
>
> yellowhoard: yup, it's naomi klein's "shock doctrine" theory all
> over again. american soverignty is at stake, and foreign oil is at
> the root of the problem (imho).
online.wsj.com/article...
On Apr 05 09:23 AM longoil wrote:
> The concept of a global currency is not a new concept. In fact, Western
> European nations and Japan had their currencies pegged to the US
> dollar (which was a gold standard currency for central banks) from
> 1944-1971 as per the Bretton Woods accord. Things started to unravel
> when was a run on gold in the late 1960's.
>
> The problem with a global currency is who will set banking policy.
> The "Euro" only became possible because a strong economic union
> had existed between member nations, who have similar cultures and
> banking systems, for 35 years prior to the common currency being
> established.
>
> I don't see the US accepting a highly reduced role in setting banking
> policy in this new global currency. I dont think the USA will accept
> the influence of other substantial stake holders with diverse cultural
> and banking standards like China, Saudi Arabia, Japan, Russia, etc.
>
>
> Look what happened with the Euro, England could not agree to the
> EU central banking policy and wound up keeping its only currency
> in the end. If a global currency is established, I think the USA
> will follow the footsteps of the British and keep their own currency.
>
>
>
COMMODITIESAPRIL 6, 2009
Gold Prices Poised to Weather IMF Sales
Article
By DEVON MAYLIE
LONDON -- Gold sales by the International Monetary Fund are unlikely to depress the metal's price because central banks would be likely buyers.
The concluding statement from the Group of 20 industrial and developing nations last week said the IMF will raise $50 billion for aid to the poorest countries, with part of that money expected to come from IMF gold sales.
IMF Managing Director Dominique Strauss-Kahn said the sales refer to the 403.3 metric tons already under discussion and still subject to U.S. congressional approval. No further sales were planned, he said.
Gold prices initially fell 3.5%, dipping below $900 a troy ounce, on Thursday's statement. Analysts said that if the sales go forward, they would be slow, orderly and absorbed by central banks. Friday, nearby April gold fell $11.80, or 1.3%, to $895.60 a troy ounce on the Comex division of the New York Mercantile Exchange.
"Central banks such as those in China, Russia and Japan are obvious counterparties to this kind of sale," said Morgan Stanley analyst Hussein Allidina.
Mr. Allidina said those central banks could diversify their large dollar holdings and buy IMF gold off-market, limiting the effect on gold prices on the spot and Comex markets.
The IMF has in the past sold gold to members off-market. In 1999 and 2000, the IMF sold 12.9 million ounces to Mexico and Brazil in authorized off-market transactions, some of which was sold back to the IMF.
The IMF has 3,217 metric tons of gold reserves, making it the world's third-largest official holder of gold behind Germany and the U.S.
Like the U.S. and the Bank for International Settlements, the IMF follows the Central Bank Gold Agreement, a pact agreed to by 17 European central banks to sell no more than 500 tons of gold each year to pact members. The five-year agreement ends Sept. 26, and analysts expect a new one to be negotiated.
Before any IMF sale happens, 85% of the fund's shareholders need to approve the proposal. Since the U.S. has 17% of the votes, it has a de facto veto over the proposal.
There are strict rules over how gold would be sold by the IMF. On its Web site, the IMF said approval would be granted only if the sale could be conducted in a way to minimize disruption to the gold market.
"The market managed to absorb [Central Bank Gold Agreement] sales and still move higher," said Philip Klapwijk, head of GFMS Metals Consulting in the U.K.
European countries that are signatories to the agreement have sold 80 metric tons of gold since the end of September, according to data in March.
"IMF sales don't necessarily mean trouble as long as investors continue to buy. It could also be attractive to central banks with large U.S. dollar holdings," Mr. Klapwijk said.
Recent data for central bank gold holdings from the World Gold Council show there is interest among central banks to increase the percentage of gold in their foreign reserves.
In the first quarter, Russia's gold holdings rose by 29.8 tons, to 523.7 tons. Gold accounts for 4% of the country's total foreign reserves, up from 2.2% at the end of 2008, the data show.
Alexei Ulyukayev, first deputy chairman of the Bank of Russia, said in February the bank plans to continue buying gold to increase the proportion of reserves held in the metal.
Ecuador's gold holdings more than doubled in the first quarter, reaching 54.7 tons from 26.3 tons at the end of 2008. Gold as a percentage of foreign reserves rose to 32%, from 9.8%.
Venezuela's gold holdings rose to 363.9 tons from 356.4 tons in the same period, and to 36% of its total foreign reserves from 23%, the data showed.
Write to Devon Maylie at devon.maylie@wsj.com
MORE IN MARKETS MAIN
On Apr 06 07:01 PM Michael Fitzsimmons wrote:
> options: unfortunately, i am not subscribed...of course, i do have
> an email addy (hint, hint). you know, i don't really understand the
> "IMF", do you? how did they obtain 403 metric tons of gold? countries
> like the US just give the "IMF" money, or gold, or what have you
> and they sell the gold and disburse it as they deem required? i don't
> get it. did the US give them our gold with congressional approval?
> weird stuff.
ALL: here is an interesting weblink on this subject sent to me by email. i found it very informative, and i hope you do to:
bankling.com/2009/what.../
The success of the euro shows that monetary union is the best way to ensure monetary stability. The primary problem with the euro and currencies of other monetary unions is that they still must co-exist within the international multi-currency system itself where the value of those common currencies must still fluctuate in value against each other.
With a Single Global Currency, there are no such fluctuations, by definition.
If 16 countries can use the same currency, why not 192?
In addition to eliminating currency fluctuations, the use of a Single
Global Currency would eliminate the current foreign exchange trading expense of $400 billion annually, eliminate currency risk, eliminate current account imbalances, eliminate the need for foreign exchange reserves (now totaling more than $4 trillion); and bring other benefits worth trillions, such as reducing the impact of global financial turmoil such as we are now experiencing.
The Single Global Currency Assn. (singleglobalcurrency.org)
promotes the implementation of a Single Global Currency by 2024, the 80th anniversary of the 1944 conference. That’s only 15 years away.
The world is moving toward a Single Global Currency through the
creation, expansion and merger of regional monetary unions. Another route is through international monetary conferences proposals and agreements, such as were seen at Bretton Woods.
The challenge now is to reach that goal deliberately, as soon as possible, with as little cost, and as few crises as possible.
See the book, "The Single Global Currency - Common Cents for the World."
Morrison Bonpasse
Single Global Currency Assn.
Newcastle, Maine, United States