STAFF NEWS & ANALYSIS
Putin Calls for End of Dollar Stranglehold
By - January 29, 2009

"The one reserve currency has become a danger to the world economy: that is now obvious to everybody," he said in a speech at the World Economic Forum. It is the first time that a Russian leader has set foot in the sanctum sanctorum of global capitalism at Davos. Mr. Putin said the leading powers should ensure an "irreversible" move towards a system of multiple reserve currencies, questioning the "reliability" of the US dollar as a safe store of value. "The pride of Wall Street investment banks don't exist any more," he said. – International Herald Tribune

Dominant Social Theme: A reasonable suggestion?

Free-Market Analysis: What the heck are multiple reserve currencies? In fact, what's a reserve currency anyway? It's actually a post World War II development, courtesy of Bretton Woods that made the dollar the world's most accepted money. At the time, countries were still gasping along on a quasi-gold standard, but there was supposedly a perceived need for one kind of money fungible throughout the world.

Supposedly is key. Actually, think "oil" and you will get a better picture. Let us not go into the causes of World War II which are perhaps not so simple as they have been made out to be – and we still come up with this impressive factoid: With half of the world's industrial capacity and all of Europe, China and Japan in rubble, it was fairly easy to arrange a monetary system that emphasized the dollar.

And it was surely a sweet deal for the Anglo Saxon elites. Anyone who needed to buy oil, needed to buy it in dollars. Jeez, imagine controlling that kind of currency. Later on, after the abrogation of Bretton Woods, the US Federal Reserve could print its reserve currency without any constraints at all. The downside was people complained, perhaps. Like the French. Ingrates.

Now Putin calls for multiple reserve currencies. He is concerned that the dollar has reached the end of the road. Indeed, maybe it has and should. So now we need multiplicities of the stuff? Hmmm… what else does Putin think…

Mr Putin said: "We are witnessing a truly global crisis. The speed of developments beats every record, and the strategic difference from the Great Depression is that under globalization this touches everyone. This has multiplied the destructive force. It looks exactly like the perfect storm." The Soviet Union avoided depression in the 1930s due to its totally closed autarkic system, although the regime inflicted other terrible hardships. However, Mr. Putin's own government in Russia is facing mass protest as unemployment surges and austerity measures start to bite.

After Thoughts

Hey, Mr. Putin, forget all this fancy prognosticating. How about keeping it simple. There is already a ready-made reserve currency: It's a market-based gold and silver standard. It worked for thousands of years, worked internationally in the eighteenth century and it could work now. So call for that in a Davos speech. Want headlines? You'd get 'em.

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