"The Gulf monetary union pact has come into effect," said Kuwait's finance minister, Mustafa al-Shamali (pictured left), speaking at a Gulf Co-operation Council (GCC) summit in Kuwait. The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them they amount to regional superpower with a GDP of $1.2 trillion (£739bn), some 40% of the world's proven oil reserves, and financial clout equal to that of China. Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank. The Emirates are staying out for now – irked that the bank will be located in Riyadh at the insistence of Saudi King Abdullah rather than in Abu Dhabi. They are expected join later, along with Oman. The Gulf states remain divided over the wisdom of anchoring their economies to the US dollar. The Gulf currency – dubbed "Gulfo" – is likely to track a global exchange basket and may ultimately float as a regional reserve currency in its own right. "The US dollar has failed. We need to delink," said Nahed Taher, chief executive of Bahrain's Gulf One Investment Bank. – Telegraph
Dominant Social Theme: The world's currencies are consolidating.
Free-Market Analysis: It seems to us that this endless ongoing currency consolidation is a very strange thing. When one looks at money, honest money, its history of individual empowerment stands out. Right now, money is going exactly the other way. You would think that market forces would drive money toward MORE independent utilization, which is how money evolved, as a medium of entrepreneurial empowerment. But when one surveys the news what seems clear is that governments are banding together to create new forms of fiat money.
The rationale seems to be that since fiat-money has not worked well on a national level, perhaps it needs to be expanded so that it can partake of broader regional support. This seems like a flawed argument, one that got central banks going in the first place. But before we continue this analysis let's review the history of money from a free-market perspective (absent Brownian revisionism).
Money is gold and silver. First money (likely silver to begin with) was dug out of the ground and probably used to make beautiful things. These things were traded along with the metals themselves and eventually utilized as a store of value. Because valuable commodities needed to be stored somewhere, money was deposited in warehouses. These warehouses gave customers' receipts and the receipts began valuable of themselves. These "bills' are what current fiat currencies are based on. But in the modern age, paper currencies have no metals' backing at all and are issued by a single central bank in a given country.
The combination of a lack of an asset base and the creation of state-mandated monopoly money issuers (central banks) has tended to make the value of money in the 20th and 21st century extremely volatile. The solution to the monetary dilemma is to shut down central banks, which have all the color of governmental authority but none of the restraints. The process is called mercantilism and is as old as the state itself. Powerful people, in this case a Western power elite, in fact, invented central banking as a way of gaining control over the issuance of money. The dream of this elite, in our opinion, is to create a single fiat currency worldwide and a single central bank.
To this end, it seems to us, there is a good deal of effort to consolidate currencies. This is a historical enterprise. Back in the 1800s silver was demonetized. It happened over a period of years and Wikipedia had at one point a list of countries (we looked but could not find it) that demonetized silver and when they did so. The process occurred fairy quickly in the 1800s as we recall and it was astounding to see how quickly it happened and the scale on which the demonetization took place. There are various interpretations of why this happened. Here's one:
In reality, the demonetization of silver was not the cause but the effect of the decline in the relative value of silver. Moreover, it was not the governments but the markets that did the demonetizing. Elsewhere in the same book Mises confirms this: "The emergence of the gold standard was the manifestation of a crushing defeat of the governments and their cherished doctrines. In the seventeenth century the rates at which the English government tariffed the coins overvalued the [gold] guinea with regard to silver and thus made the silver coins disappear. Only those silver coins which were much worn by usage or in any other way defaced or reduced in weight remained in current use; it did not pay to export and to sell them on the bullion market." "Thus England got the gold standard against the intention of its government. Only much later [did] the laws make the de facto gold standard a de jure standard. The government abandoned further fruitless attempts to pump silver into the market and minted silver only as subsidiary coins with a limited legal tender power … Later in the course of the nineteenth century the double standard resulted in a similar way in France and in the other countries of the Latin Monetary Union in the emergence of de facto gold monometallism. When the drop in the price of silver in the later seventies would automatically have effected the replacement of the de facto gold standard by the de facto silver standard, these governments suspended the [unlimited free] coinage of silver in order to preserve the gold standard (op.cit.,pp 471-2)." -GoldIsMoney
The operative phrase in the above excerpt, in our opinion is "the rates at which the English government tariffed the coins overvalued the [gold] guinea with regard to silver and thus made the silver coins disappear." Thus we can see, once again that it was not market forces at work that affected money but government efforts, in this case a tariff. We don't know if Mises believed the demonetization of silver was an inadvertent after-effect of a tariff or not. But certainly the demonetization of silver conveniently paved the way for the gold standard that was infinitely more open for manipulation than the gold-and-silver standard. And the consolidation of the gold standard inevitably led to fiat currencies. And now fiat currencies are consolidating.
Observers less suspicious than ourselves would make the argument no doubt that the evolution of money is simply a marketplace phenomenon. That money has morphed from a private gold and silver standard in which money was available to all, to an increasingly regionalized state-run/central banking instrumentality, is simply a result of what the market demands. You may believe that, dear reader, but we do not. We think the metamorphosis of money is NOT a coincidence. We might grant it were a coincidence if the evolution were not so endlessly in favor of more and more mercantilist control – whereby the state provides the imprimatur and the power elite provides the vision and grabs the profits.
We see the trend toward regional currencies and it has done nothing to alleviate our suspicions. The IMF special drawing rights are a form of regional, even super-regional "money." In South America, a regional currency is planned. Others have been mentioned. And now there is the Gulfo. The Gulfo!
Before we researched it, we guessed the Gulfo was being put forth by a certain coterie of countries and my goodness we were dead on. All the usual suspects are there, the most malleable of the small Gulf states. There's tiny Qatar, which the US used as a jumping off point for its invasion of Iraq. And then of course there is Kuwait, which wouldn't even exist today without American intervention.
If you happened to be a member of the Anglo-American axis (which is evidently and obviously behind the initial impetus for currency consolidation) and you wanted to set up an international currency, you'd be running around trying to set up regional currencies wherever you could. Once you got enough regional currencies set up, you could try to bundle them together into a global currency. But in order to set up regional currencies, you have to find states that are cooperative.
Sometimes, states may set up regional currencies in opposition to the currencies that you are setting. This may be the case with South America. But from out point of view, this is probably not the case in the Middle East. The tiny states that have banded together to set up the Gulfo are coincidentally the most malleable allies of the West. Kuwait, Qatar and the others are actually to a degree the inventions of the British, and the idea that these tiny states are doing something in opposition to the Anglo-American power axis is a supposition we have a hard time accepting.
No, we think there are other forces at work here. Most of what the power elite does is aimed at breaking down what is left of the republicanism of the West. The wars, the economic manipulations, all of it in our humble opinion is focused on controlling Western peoples and their cultures which happen to be the current repositories of Western individualism and freedom. Destroy or debase Western culture and it will be much easier to set up a global government. So these currency realignments are aimed at the West and are intended to further consolidate and control Western economies. There is to be an air of inevitability about this process and it is one that is to be brought home to Western citizens at every level. Even the ridiculous name "Gulfo" seems aimed at a Western audience rather than an Eastern one.
Believe if you wish, dear reader, that all of these regional currencies are emerging spontaneously. We have a hard time with that. We think someone, or several, may have whispered in Qatar's ear when it came to the Gulfo. And Kuwait, too. All those funny little countries. We anticipate efforts to create still more regional currencies in the months and years to come. And no, it probably won't matter whether or not there is a productive rationale for them. In fact, the euro, the model regional currency, may stumble or fail in the near future. But as we have often pointed out, one of the hallmarks of a power elite promotion is its imperviousness to common sense, utility and general necessity.