Zhu Min (pictured left), executive vice president of the Bank of China, a government-run commercial bank, says that the Federal Reserve's decision to print billions and billions in new dollars to head off the financial crisis would make the greenback irrelevant to global finance and trade. That will happen unless there is another global currency to balance it, he told CNBC. While the dollar remains a global currency, it can't support the world economy by itself, Zhu says. "Either we ask the U.S. to take the whole responsibility of the world economy, with the dollar as global legal tender, or else we need something else as an anchor," Zhu says. He reiterated a call for the use of an International Monetary Fund (IMF) instrument to offset the dollar's influence on international reserves and trade. Known as special drawing rights (SDR), the practice dates back to the late 1960s, when the IMF used the vehicle to supply reserve assets to expand trade when gold and the dollar were in short supply. "The IMF's special drawing rights could at least balance the dollar," Zhu says. Zhu says, however, that the Chinese yuan, known domestically as the renminbi, has a role in global currency matters in the future. – Money News
Dominant Social Theme: The dollar is on its last legs.
Free-Market Analysis: Let us point out two things that this article, excerpted above, seems to confirm. First we wrote recently that it seemed to us that the IMF special drawing rights were a gambit by China (and Russia) to attack the dollar. In China's case, it seemed to us the IMF gambit was meant to be a big stick to beat up the United States if the American Federal Reserve prints "billions and billions" in new paper dollars – that would effectively devalue China's horde of some US$2 trillion. (We can only imagine the finger-pointing going on now within the top committees of the Communist party over who was responsible for the bright idea of buying so many dollars to begin with.)
The second point we made recently was that we were puzzled over China's enthusiasm for the IMF, which is a Western, basically Anglo-Saxon organization. We pointed out that the Chinese and Russians could get together and create a new currency anytime, and if they backed it with gold, it would likely meet with good acceptance. Well, now the other shoe has dropped. Turns out the Chinese are not just interested in an IMF currency – and that it may be only a way-station to a reserve currency called the renminbi! (Sure, they may not get all the way there, but they are doubtless headed in that direction.)
How did we guess – as the above article indicates – that the IMF-currency thing-y was maybe a stick to beat up America? And why did we think that the Chinese endorsement of the IMF as the next super-currency was plenty weird, anyway, and not the last exit on the highway? Because the way that monetary policy is reported by the mainstream media is downright strange – and in our opinion gives an inaccurate presentation of how these things really work. When we follow a different, less hygienic, paradigm, we come up with different conclusions.
Our free-market point of view is not necessarily a popular one, of course (though growing), and certainly not a mainstream academic one. Take a gander at any textbook describing central banking and the Federal Reserve in particular and you will find much that is overly clinical (bloodless) with the rest stupefying. Read the textbooks, unfortunately, and you will learn that all this financial stuff got invented via legislative maneuverings that would put anybody to sleep. Not so.
Here's a history of the Federal Reserve (apologies to G. Edward Griffin) that is certainly more exciting than the textbook version. The way it seems to have really worked, a bunch of extremely powerful men likely helped destabilize American and European markets in the hopes of creating a groundswell of support for a bank of last resort. They then met on a tiny island in disguises, in secret, and came up with a central bank that would eventually put into their hands the power to print as much money as they wished, and take away from others the ability to find, keep and place money (gold and silver) into circulation. And the whole process would cleverly aid in the systematic draining of the productivity and ultimately the wealth of the targeted countries citizens. They didn't want to call it a central bank because Americans wouldn't stand for that. So they called it a Federal Reserve and eventually got it passed into law with questionable legality.
And how did the American reserve currency – the dollar – come about? Because of a world war. In fact, it was the greatest triumph by a single, warlike culture in any war at any time, in our humble opinion. At the end, America and Britain literally ruled the world and made the rules. And one of the first rules was that the dollar would have to be used when purchasing oil – it was the "reserve." Thus, other countries, many of them conquered, would have to use the dollar, and buy it from America. Thus, if we look at the world this way, we arrive at the conclusion that central banks are set up in secret and that reserve currencies are based on military power. No academic model, this.
What is going on is a definite re-alignment of the world from a financial standpoint. But even if one accepts the above point of view about money and power, what is occurring is neither as clear cut nor as simple as one might think. Why? Because one has to remember that all, or almost all, of the global mechanisms that are currently deployed were developed around or after World War II, including the United Nations – by the current power axis. This is the same monetary elite that has most recently presided over severe damage to the monetary fabric of the West – thus apparently playing into the hands of those who wish the West ill. One is inevitably forced to the conclusion that those who preside over monetary policy in the West may not actually be opposed to a resurgent China and a strong Chinese currency. (And yes, this brings up further questions about how much of a military threat to the West China truly is.) A strange state of affairs indeed.