George Soros (pictured left), whose latest book, "The Crash of 2008 and What it Means," has made prescient calls during the current credit crisis. Soros also said the U.S. dollar is under selling pressure and may eventually be replaced as a world reserve currency, possibly by the IMF's Special Drawing Rights, a synthetic currency basket comprised of dollars, euros, yen and sterling. "I think the dollar is now under question and I think the system will need to be reformed, so that the United States will be subject to the same discipline as is imposed on other countries," said Soros, whose famous bet against the British pound earned his Quantum Fund $1 billion in 1992. "Being the main issuer of international currency, we have been exempt and we have abused that because we have effectively consumed 6.5 percent more than we have produced. That is now coming to an end." China recently proposed greater use of Special Drawing Rights, possibly as an eventual global reserve currency. "In the long run, having an international accounting unit rather than the dollar may, in fact, be to our advantage so we can't splurge-you know, it felt very good for 25 years but now we are paying a very heavy price," Soros said. – CNBC
Dominant Social Theme: Here comes the new global currency …
Free-Market Analysis: Enough already! We believe we are one of a very few papers that reported in detail on the IMF drawing rights and the new currency buzz running from country to country in ADVANCE of the G20 Summit. We reported it, but we didn't endorse the idea, nor are we sure the IMF can pull off a new currency, even with the backing of other powerful nation states such as China.
The China thing is a puzzler. Why would China want to come out and blast the dollar when it holds US$2 trillion, or some such amount? Hey, could it be that the Chinese leaders are very unhappy with the idea that the American Federal Reserve will continue along the lines of "quantitative easing " – printing so many dollars that the Chinese holdings will be inflated away? Is that a reason to threaten the Americans with a new currency?
If so, the set up reminds us of what happened to gold in the late 1990s when Western central banks one after the other announced they were going to sell gold, and lots of it. Of course, we don't believe many did, certainly not in the amounts they said they were going to. They were "talking gold down."
Again, we ask, is this situation similar? At some very high level we bet the telephones are ringing off the hook. Russia is talking to China, China is talking to Britain and some people are even talking to France. And then everyone is making calculated pronouncements – for a variety of reasons. (Is Soros shorting the dollar?) Anyway, it's push back … and pay back. American central bankers just can't just keep merrily printing dollars. Inflation has consequences. The Chinese obviously are taking "human action" (Mises' phrase).
It seems to us that the IMF currency promotion is not simply an idea whose time had suddenly come. And neither is this constant talk of IMF special drawing rights replacing the dollar as the reserve currency. Of course, it could happen; anything could happen in an environment where the market itself is repressed and unable to create honest money. If the monetary elite would simply let the system alone you probably have a gold and silver monetary system within a year.
You know, there are other currents, too, and secrets within riddles. We have not forgotten there are still considerable attempts to build regional currencies. One is up and running in Europe. However, some who consort with the monetary elite are on record as suggesting it would be nice to see two more: one in Asia and one in the Americas. In the case of the Americas, the regional currency that has been proposed (quite seriously, apparently) combines the dollar with the Mexican peso and the Canadian loonie. Is the IMF currency-in-waiting related, somehow? Could it be? …
We shall be interested to see just how far and fast this notion of an IMF super currency travels. And we shall be even more interested to see – if it continues to be mentioned by such prestigious thinkers as George Soros – whether there will spring up in America a spontaneous movement to "fight back" by combining the currencies of several nations together: say Mexico, Canada and the United States. If we start to hear a renewed buzz about a regional, North American currency to ensure that an international "IMF" currency does not evolve, well, let's just say that it will only reinforce our most cynical impulses. And we're cynical enough already.
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