We might have two new currencies in the years ahead. One can be symbolized
as the M$ and the other as the W$ (or world dollar). We might have one
following the other or we might have both simultaneously, though the M$ is
likely to be transient except as a domestic token.
The M$ is the "Mighty", a possibility that Barack Obama is truly worried
about -- an anxiety that is way above his present ragings about the BP's
Gulf Oil disaster. (Incidentally, Obama's other big anxiety is that the
blowing-up of Iraq's central bank yesterday must be the final iconic
slap-in-the-face of America's attempts to get its hands on Iraq's rich
northern oilfields.)
The M$ is something that the US Treasury might have to create in the
not-too-distant future as the present US$ continues to devalue and becomes
distrusted in the wider world. Depending on the level of inflation, or
hyperinflation, the M$ -- in present-day dollar terms -- might be worth
US$100 (if the French devaluation of the franc in 1960 is any guide) or
even up to US$ 1 billion (if German, Zimbabwean or many other devaluations
of the past are any guide)..
Bear in mind, however, that we already have a vast and growing C$ -- the
Chinese "people's dollar" (the yuan or renminbi) -- and also the
increasingly important R$, the real or Brazilian dollar. There is also the
CR$, a hybrid trading dollar, which China and Brazil are experimenting
with, such is the scope of the growing trade between them and the doubts
that both of them have about the future stability of the US$, the usual
trading currency of the modern world.
But China and Brazil (and Russia, Japan, India and France) are also
involved with serious discussions of yet another new trading currency that
be can be symbolized as the ME$ -- the Middle East dollar. As noted in The
Independent last October (but, understandably, scarcely mentioned in US
media), the Gulf Co-operation Council (GGC -- Saudi Arabia, Abu Dhabi,
Kuwait and Qatar) wants to be paid in a currency that's more reliable than
the vacillating US$.
Notionally, the GCC is friendly with America and at present sends a lot of
oil across the water but it looks increasingly likely that the relationship
will be strained unless America can get its currency house in order pretty
soon. However, to any realistic betting man, the prospect of America ever
being able to pay off its vast and growing national debt -- now in US$
trillions -- is unlikely. Like the UK, America has so demolished its
engineering capabilities (under the mistaken notion that post-industrial
"services" are much more valuable) that it can never hope to export enough
goods in the future unless the dollar becomes very cheap indeed. There
could be some miracle development of automated factories that could make
goods cheaper than China, but that would hardly help America's growing
unemployment, its taxation potential and thus its ability to pay off its debt.
Increasingly, sensible betting men -- particularly those in the GCC
countries -- are turning to buying gold these days rather than totally
commit to US Treasury bonds. Also, gold is seen to be an important
component of the new package of assets that will make up the putative ME$.
The currency situation is a mess. It began in earnest on the day that
President Nixon severed the tie between the US$ and gold but kept its
massive hoard intact in Fort Knox. ("Whatever for?" one may validly ask,
when gold is considered to be a valueless currency! Is it there for
dentists or jewellery makers?) Will the CR$ become a wider trading
currency? Will the ME$ be able to develop into a W$? Will the US$ have to
become the "Mighty" dollar? -- though hardly likely to be believed in any
longer even by a credulous public, at least in the outside world.
During World War II, German banks were still transacting with enemy banks
through intermediaries in Switzerland. How did they do this? Using gold, of
course. (And it only had to be moved a few yards up and down the street
whenever re-balances were made!) Ultimately, gold still remains the
ultimate currency that most people and most countries believe in whatever
central banks and treasury officials may say. There is nothing terribly
unique about its properties (say, as against silver or platinum) but, over
the millennia, for several physical reasons, it happens to have survived as
the best status consumer good (as ornaments) and fittest among other
currencies that have been used in the past such as copper, silver, bronze,
jade, cowrie shells or cows.
Also, as a useful by-product of gold being the basis of a world currency
(or an important part of a larger, stable value package) then economics,
for the first time, can become a scientific subject. All science subjects
have basic grids against which all their observations and experiments are
measured. Economics, complex though it is, has the chance of becoming truly
scientific if currencies were no longer printed ad lib by any country --
even mighty America -- as they have been for the past century.
Would Obama ever be able to pull off a W$ as the Chinese, among several
others, would like him to? Most unlikely. It would involve too much loss
of face. We'll have to have a currency catastrophe instead. Fortunately
there is a minority of economists who have thought all this through for
many decades past. The principles of sound currency are well understood. A
sensible world trading currency could be established relatively quickly --
perhaps not overnight, but certainly within a few days. This would be
necessary for world-wide cash dispensing machines and world trade to resume
again before rioters can take over governments.
Keith
Keith Hudson, Saltford, England
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
