Ed,
You are certainly right in saying that governments use their paper
currencies as strategic devices. In fact, that's how paper currencies
started. When it was obvious that the First World War was not going to be
"over by Xmas" and that governments couldn't possibly borrow enough
gold-backed currency (as all of them were at that time) to pay for
armaments then the UK, quickly followed by others, had to start inventing
"new pounds" -- banknotes not backed by gold. This way they could borrow
amounts that would have been inconceivable before then.
Yes, Western nation-states will resist the idea of a gold-backed currency
for as long as they can because that would then mean that they couldn't
keep on borrowing the vast amounts that they do now. But whether we have
deflation, period, or deflation followed by inflation (followed by
deflation again) then Western Europe and America -- flat on their backs --
will be in no condition to resist a new world currency if it is adopted by
those countries which are already calling for it -- China, India, Russia,
Middle East, Brazil, etc. If they concentrated on trading between
themselves they could largely leave us out of the loop -- they'll have
enough resources and enough consumer market.
A dependable world trading currency doesn't have to be gold-backed
specifically. Almost any necessary commodity whose price and availability
doesn't alter much from year to year would do (palladium, silver, copper,
tin, even sunshine received per square metre, etc). For all sorts of
reasons (malleability, purity, etc) gold has endeared itself to most people
for most of the last five thousand years and so it's the most convenient
candidate.
Keith
At 10:39 10/07/2010 -0400, you wrote:
Keith, you argue that we are moving away from "paper token" currencies and
toward an international currency, perhaps backed by gold, that holds its
value no matter what. I don't think that's going to happen because
currencies are a strategic device, and countries would not want to give up
their power over them as strategic devices. Look at what China has been
able to do by deliberately keeping the renminbi low relative to the US
dollar and other currencies. If it were to raise the value of the
renminbi, it would likely demand concessions of some kind. The UK is a
member of the EU but has not accepted the Euro as its currency. This
leaves it free to use the pound strategically as it feels it has to.
Ed
Keith Hudson, Saltford, England
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