After the week-end meeting of the International Monetary Fund (IMF) the two
alternatives I mentioned in my last piece ("Something big in the offing", 7
October) are now more stark than ever.
<<<<
1. Some sort of world trading currency is in the offing to replace the
American dollar, probably based on a revised price of gold (so that, at its
institution, all government debts can be wiped out);
>>>>
Besides the BRIC countries (Brazil, Russia, India, China -- and several
other developing or trying-to-develop countries also), the Institute of
International Finance (IIF), representing 420 of the world's largest banks,
are now calling for a world currency. The managing director, Charles
Dallara, wrote to the Financial Times on 4 October (a letter which I'd
missed). This is to prevent the recent devaluation skirmishes between 24
countries expanding to others and becoming an outright war.
In addition, according to Ambrose Evans-Pritchard in yesterday's Sunday
Telegraph, Premier Wen of China and President Sarkozy of France have been
having secret talks about a replacement for the American dollar before it
makes a hard landing and pulls most other countries down with it. (No doubt
Germany has also been involved.)
<<<<
2, An increasing de-coupling of trade between America and the rest of the
world will be taking place from now onwards with the major Western banks
increasingly servicing the latter, and America experiencing the same sort
of downgrading that the UK did (and still does) during the decline of the
British Empire.
>>>>
China badly needs to revalue its currency, the renminbi (yuan), upwards to
stave off a massive looming domestic inflation (which could leave it in a
Japanese-style stupor) but not if in subservience to the dollar.
Forty-three almost bankrupt countries were bullied into this at the Bretton
Woods Conference in 1944 when it was obvious that America would be the only
economically healthy survivor after World War 2. Of the only two countries
which at that time still exchanged their currencies for gold (besides the
America itself), Japan was bullied into subservience to the dollar at the
1985 Plaza 'Agreement'. and Switzerland was inveigled into it about ten
years later.
When America was becoming so spendthrift as to be no longer able to carry
out its obligations to exchange its dollars for gold, President Nixon cut
the link in 1971, and from then onwards all currencies started to float
against one another and the dollar itself (as though the dollar itself was
not also devaluing against commodities). If there had been a standard
against which national currencies could be referenced, this would have been
fine. Their currency values would only then depend on the relative health
of their economies. But there wasn't such a standard, and national
currencies have see-sawed about increasingly ever since -- much at the
mercy of currency speculators such as George Soros's Quantum Fund.
Almost any standard world currency would do, so long as it is itself
reasonably stable in value (not easily able to be printed or conjured up
out of thin air) and beyond being tampered with by any individual
government. By a process of survival of the fittest over many millennia,
bartered goods became portable, valued objects of convenience --
currencies. Whether they were pieces of silver (in ancient Mesopotamia)
squares of sheepskin (in Mongolia), iron nails (around Adam Smith's town of
Kirkcaldy in his day), wampum shells (Northern American tribes) or gold
coins (ancient Greece, China, India, Islam up to 1914 in Europe) they would
do. Meanwhile, by a continuation of survival of the fittest, gold and
silver became the only currencies that became trans-cultural, whether of
central banks or Indian villageers.
But at present we're still stuck at Alternative 2 above. Meanwhile, the
price of gold is rising at a fast, but steady pace (and silver even
faster). Relative scarcity are their chief virtue of being a suitable
standard. What matters is that when their prices reach high enough levels
(or are promoted there by international agreement) and can pay off existing
national debts then we will continue to have chaos and confusion. Whether
this takes place quickly or protractedly remains to be seen.
The moment of truth will probably come only when chaos will be at the edge
of complete world-wide economic collapse (and maybe revolutions in some
countries) and the developed countries openly admit that neither
quantitative easing nor austerity can possibly redeem the huge debts they
are now carrying and hoping that taxpayers will pay off.
Keith Hudson, Saltford, England
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