Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Dow 30k before End of 2020? - 13th Jul 20
Credit Market Investments Turned Into End-User Risk Again - 13th Jul 20
Investors Are Going All-In on This Coronavirus Proof Industry - 13th Jul 20
5 Vital Insights That You Can Gain From Instagram Trackers - 13th Jul 20
Stop Believing The 'Economy' Is The Same As The Stock Market - 12th Jul 20
Spotify Recealed as The “Next Netflix” - 12th Jul 20
Getting Ahead of the Game: What Determines the Prices of Oil? - 12th Jul 20
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

The Reserve Fiat Currency Triffin Dilemma Will Create a 3-G World

Currencies / Fiat Currency Apr 06, 2012 - 12:40 PM GMT

By: Richard_Mills

Currencies

Diamond Rated - Best Financial Markets Analysis ArticleTrade imbalances - deficits and surpluses - between nations are one of the major reasons for financial crises. Countries become trapped in a vicious spiral - they accumulate debt because they are sustaining a trade deficit, the bigger their debt grows year after year, the harder it becomes to generate a trade surplus.


Only the countries with a trade surplus have any room to manipulate policy, there's very little debtor nations can do.

In 1942-1943 John Maynard Keynes formulated a solution. His answer was to "persuade" the creditor nations to spend their surplus money back into the economies of debtor nations.

His proposed creation, the International Clearing Union, would be a global bank and issue its own currency, the Bancor, a supranational currency to be used in international trade as a unit of account exchangeable with national currencies at fixed rates of exchange.

The bancor would be used to measure a country's trade deficit or trade surplus. Every country would have an overdraft facility equivalent to half the average value of its trade over the past five years. Any country racking up a trade deficit of more than half of its bancor overdraft allowance would be charged interest on its account, have to reduce the value of its currency and prevent export of capital.

On the other side of the trade balance any nation with a trade surplus (a bancor credit balance) more than half the size of its overdraft facility would be charged interest, have to increase the value of its currency and permit export of capital.

Keynes proposed penalty for missed compliance on nations with a trade surplus was severe, it was designed to give nations with a surplus a powerful incentive to erase it and in doing so automatically clear other nations' deficits. By the end of the year a countries credit balance could not exceed the total value of its permitted overdraft, if it was the surplus would be confiscated.

"It would be difficult to exaggerate the electrifying effect on thought throughout the whole relevant apparatus of government ... nothing so imaginative and so ambitious had ever been discussed." ~ Lionel Robbins, British economist

Britain adopted Keynes's solution as its official negotiating position for the Bretton Woods conference in 1944 - the United Kingdom wanted to introduce the Bancor after the Second World War ended.

The US was vehemently opposed to the idea...

"We have been perfectly adamant on that point. We have taken the position of absolutely no." ~ Harry Dexter White, head of the US delegation at Bretton Woods

The Bretton Woods conference established the U.S. dollar as the worlds reserve currency.

"Lord Keynes was right ... the world will bitterly regret the fact that his arguments were rejected." ~ Geoffrey Crowther in 1944, editor Economist magazine

On April 13 2010, the Strategy, Policy and Review Department of the IMF published a comprehensive report entitled "Reserve Accumulation and International Monetary Stability." The IMF report advocates the adoption of a true global currency, the "Bancor" (so named in honor of Keynes), administered by a global central bank...

"A global currency, bancor, issued by a global central bank would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. As trade and finance continue to grow rapidly and global integration increases, the importance of this broader perspective is expected to continue growing."

The Triffin Dilemma

When a national currency also serves as an international reserve currency conflicts between a country's national monetary policy and its global monetary policy will arise.

"In October of 1959, a Yale professor sat in front of Congress' Joint Economic Committee and calmly announced that the Bretton Woods system was doomed. The dollar could not survive as the world's reserve currency without requiring the United States to run ever-growing deficits. This dismal scientist was Belgium-born Robert Triffin, and he was right. The Bretton Woods system collapsed in 1971, and today the dollar's role as the reserve currency has the United States running the largest current account deficit in the world.

By "agreeing" to have its currency used as a reserve currency, a country pins its hands behind its back. In order to keep the global economy chugging along, it may have to inject large amounts of currency into circulation, driving up inflation at home. The more popular the reserve currency is relative to other currencies, the higher its exchange rate and the less competitive domestic exporting industries become. This causes a trade deficit for the currency-issuing country, but makes the world happy. If the reserve currency country instead decides to focus on domestic monetary policy by not issuing more currency then the world is unhappy.

Becoming a reserve currency presents countries with a paradox. They want the "interest-free" loan generated by selling currency to foreign governments, and the ability to raise capital quickly, because of high demand for reserve currency-denominated bonds. At the same time they want to be able to use capital and monetary policy to ensure that domestic industries are competitive in the world market, and to make sure that the domestic economy is healthy and not running large trade deficits.

Unfortunately, both of these ideas - cheap sources of capital and positive trade balances - can't really happen at the same time." ~ How The Triffin Dilemma Affects Currencies, investopedia.com

"Providing reserves and exchanges for the whole world is too much for one country and one currency to bear." ~ Henry H. Fowler, U.S. Secretary of the Treasury

In the wake of the financial crisis of 2007-2008, Zhou Xiaochuan the governor of the People's Bank of China, said that a national currency is unsuitable as a global reserve currency because the Triffin dilemma is today, the root cause of global economic disorder.

In a speech titled "Reform the International Monetary System" Zhou argued that part of the reason for the original Bretton Woods system breaking down was the refusal to adopt Keynes' bancor. Calling Keynes's bancor approach "farsighted" Xiaochuan proposed strengthening existing global currency controls through the IMF by the adoption of International Monetary Fund (IMF) special drawing rights (SDRs) as a global reserve currency.

When Special Drawing Rights were originally created in 1969 one SDR was defined as having a value of 0.888671 grams of gold, equal to the value of one US dollar at that time. After the breakdown of the Bretton Woods system the SDR was redefined in terms of a basket of four currencies.

From January 1 2011, the IMF has determined that the four currencies will be assigned revised weights based on their roles in international trade and reserves.

Due to varying exchange rates, the relative value of each currency varies continuously and thus the value of the SDR fluctuates. The IMF fixes daily the value of one SDR in terms of US dollars based on the exchange rates of the constituent currencies.

The following is the current breakdown of the components of an SDR on Thursday April 5th 2012....

U.S. Dollar: 41.9 percent Euro: 37.4 percent Yen: 9.4 percent Pound: 11.3 percent

"A limitation of the SDR as discussed previously is that it is not a currency. Both the SDR and SDR-denominated instruments need to be converted eventually to a national currency for most payments or interventions in foreign exchange markets, which adds to cumbersome use in transactions. And though an SDR-based system would move away from a dominant national currency, the SDR's value remains heavily linked to the conditions and performance of the major component countries." IMF report "Reserve Accumulation and International Monetary Stability"

A Single Global Currency: Is it Feasible? By S. Korra, B. Gopal and S. Gollapalli

"For almost 2,500 years, countries across the world have experienced multicurrency foreign exchange (FX) transactions and its erratic currency fluctuations. The daily turnover in currency markets rose to $3.2 trillion, which was more than 10 times the world GDP. Daily volumes of cross-currency swaps grew by 281% between 2004 and 2007. International corporations were participating more actively in FX market. The US dollar remained the prominent currency in the FX market covering two-fifths of daily transactions. Emerging market currencies were also gaining equal significance on the FX front with 20% of all transactions by April 2008.

Turnover of foreign exchange options and cross-currency swaps more than doubled to $0.3 trillion per day. Though the multicurrency FX market stated a surge of 71% in volume since 2004, it was associated with various costs.

Transactions costs in currency trading were very huge at $400 billion in 2007. Frequent speculations in currency trading resulted in currency fluctuations and in extreme cases led to currency crises. On the contrary, these expensive costs in forex transactions would not be considered in the 3-G world (a Global Monetary Union, with a Global Central Bank and a Single Global Currency - Rick). The 3-G world is the implementation of a single global currency to be managed by a Global Central Bank within a Global Monetary Union. The successful examples were the euro and the dollar.

Moreover, the number of currencies declined to 147 from 159 in the early 21st century. With the implementation of a single global currency huge transaction costs would be saved. There would not be any currency fluctuations and currency risks while dealing in the FX market."

During a trip to China, International Monetary Fund director Dominique Strauss-Kahn said the days of one country's currency as the global benchmark are numbered, globalization demands a new global currency that provides representation for the growing importance of a variety of major economies.

"If we are to have a truly global economy, a single world currency makes sense." ~ Paul Volcker, former Governor of the Federal Reserve Board

Economist Robert A. Mundell says that the creation of a global currency is "a project that would restore a needed coherence to the international monetary system, give the International Monetary Fund a function that would help it to promote stability, and be a catalyst for international harmony. The benefits from a world currency would be enormous. Prices all over the world would be denominated in the same unit and would be kept equal in different parts of the world to the extent that the law of one price was allowed to work itself out. Apart from tariffs and controls, trade between countries would be as easy as it is between states of the United States."

The Council on Foreign Relations (whose founding members included J.P. Morgan, John D. Rockefeller, Paul Warburg, Otto Kahn, and Jacob Schiff - the same people who had engineered the establishment of the Federal Reserve System) 2007's article "The End of National Currency" advanced the idea of a global wide currency restructuring. After examining the European Monetary Union it turned to the prospects for monetary unions in North America, South America and East Asia. Regional Monetary Integration emphasizes "the economic and institutional requirements for successful monetary integration, including the need for a single central bank in the case of a full-fledged monetary union and the corresponding need for multinational institutions to safeguard the bank's independence and assure its accountability."

Of course this is only a follow up to numerous articles written earlier, such as the CFR journal, Foreign Affairs for July/August 1999. In the opening paragraph of his essay, From EMU to AMU?: The Case for Regional Currencies, Zanny Beddoes of Britain's The Economist pronounces: "By 2030 the world will have two major currency zones - one European, the other American. The euro will be used from Brest to Bucharest, and the dollar from Alaska to Argentina, perhaps even Asia."

How important, how widespread and far reaching is the Council on Foreign Relations (CFR)?

"Since 1934 almost every United States Secretary of State has been a CFR member; and ALL Secretaries of War or Defense, from Henry L. Stimson through Richard Cheney...nearly ALL presidential candidates have been CFR members. President Truman, who was not a member, was advised by a group of "wise men," all six of whom were CFR members, according to Gary Allen. In 1952 and 1956, CFR Adlai Stevenson challenged CFR Eisenhower.

CFR candidates for president include George McGovern, Walter Mondale, Edmund Muskie, John Anderson, and Lloyd Bentsen. In 1976 we had Jimmy Carter, who is a member of the Trilateral Commission, created by David Rockefeller and CFR member Zbigniew Brzezinski with the goal of economic linkage between Japan, Europe, and the United States, and: "...managing the world economy...a smooth and peaceful evolution of the global system.

We have also had (though his name strangely disappears from the membership list in 1979) CFR director (1977-79) George Bush, and last but not least, CFR member Bill Clinton." ~ William Blase, The Council on Foreign Relations (CFR) and The New World Order

President Obama has surrounded himself with CFR members ie Susan E. Rice, is a prominent member of the Council On Foreign Relations and serves as the U.S. Permanent Representative to the United Nations and is a member of President Obama's Cabinet. Rice will lead the U.N. Security Council and is considered a leading contender for secretary of state if Obama wins a second term

The Bank for International Settlements (BIS) - established in 1930 and self described as the central and the oldest focal point for coordination of global governance arrangements is, in reality, the central bank for the world's central banks and is the one true authority in terms of 'global governance' - has publicly endorsed a global currency.

Conclusion

With a global government not yet in place how will the process of a global currency be accomplished? The process is already well established (and unrecognized by most) with the advancement of regional currencies such as the Euro, SUCRE (South America), floating the idea of the AMERO (US, Canada and Mexico), the Franc of the African Financial Community, an Asian currency and a Arabian Gulf regional currency.

Once 147 national currencies are five or so regional currencies, with most of the world's population involved, it's a logical step down to one global currency built around the regional currencies.

It isn't if we get a global currency, it's when, the only question being will gold play a part?

The Dream of a World Currency, Interview of Tommaso Padoa-Schioppa by Alberto Orioli

AO: Thus the lesson for the future is a single currency, as China is asking for?

TPS: As a former central banker, I think that when you talk about global standards, you should first think about monetary standards and then about legal ones, because that is a functional economic fact, even though it rests on a legal basis. In other words, I do think this crisis poses the problem of a new international monetary standard. Its absence, and the absence of the discipline that it would impose are one of the deep reasons of the present crisis.

AO: Once the currency was pegged to gold...

TPS: If that peg still existed, in the last few years the countries that were accumulating big external deficits - such as the United States - should of had to convert a part of it into gold; the consequent scarcity of gold reserves would have obliged them to change their course."

Today no country is on a gold standard and all currencies are fiat. If a future fiat global currency were to be put in place without full, or at least a hefty partial gold backing, then we'd simply be repeating Bretton Woods - the 1944 US dollar failed reserve currency experiment - except it'd be on a much grander scale.

A future 3-G world, and a re-introduction of gold into the global monetary system, should be on all our radar screens. Is it on yours?

If not, maybe it should be.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about specific lithium juniors and the junior resource market in general please come and visit us at www.aheadoftheherd.com. Membership is free, no credit card or personal information is asked for.

Copyright © 2012 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Morrison Bonpasse
09 Apr 12, 08:05
Single Global Currency

The success of the euro shows that monetary union is the best way to ensure monetary stability. If 17 countries can use the same currency, why not 192? The world should begin researching and planning now for a Single Global Currency, which will would eliminate the current foreign exchange trading expense of $200-400 billion annually, eliminate the need for expensive foreign exchange reserves, eliminate currency fluctuations, and bring other benefits worth trillions.

The Single Global Currency Assn. promotes the implementation of a Single

Global Currency by 2024, the 80th anniversary of the 1944 conference.

That's only 12 years away. The Assn's website is www.singleglobalcurrency.org. See, also, the book, "The Single Global Currency - Common Cents for the World."

Morrison Bonpasse

President

Single Global Currency Assn.

Newcastle, Maine, USA


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules