Special drawing rights issued by the International Monetary Fund could be used as an international reserve currency, Hu Xiaolian, vice-governor of the People's Bank of China, said Friday. Hu told a symposium organized by the Bank of Paris that volatility in exchange rates among existing reserve currencies – which include the U.S. dollar – affects commodity prices and causes problems for other nations … Hu said the SDRs have "a potential role to play as an international reserve asset." – Wall Street Journal
Dominant Social Theme: The time has come to make a change. The IMF can lead the way to global financial efficiency.
Free-Market Analysis: So much of the world's economy is in flux these days. The Middle East suffers from serial color revolutions. In Europe, the euro is faltering because of the Sovereign debt crisis. Despite comforting predictions from the Obama administration, America remains mired in a stubborn recession with commensurate job loss and growing inflation concerns while their currency spirals towards the fiat-money graveyard that inevitably hosts all value-delinked paper currencies.
Even China, the world's engine of prosperity is having its problems. Price inflation has sent real estate into the stratosphere and food too has grown dangerously costly. Chinese leaders are in a dilemma: If they push too hard to tame price inflation, they may choke off the economic growth they so desperately need. If they do not do enough, price inflation will spread and the economy itself will become unmanageable.
Within this context it is tempting to hypothesize that the Anglo-America elite that has created the world's economy over the past 100 years (see City of London) is willing to let social and economic chaos blossom in order to justify the transition to a true global economy and a global currency as well. The International Monetary Fund has been especially outspoken on this issue, proposing that its SDRs constitute the beginnings of a global currency.
SDRs are international reserve assets supported by the International Monetary Fund (IMF). It is not a currency of itself but a "claim" on the IMF member currencies. In point of fact, if a country wants to cash in its SDRs, it has to find another country willing to trade dollars for its SDRs. While the SDR basket includes the pound, the euro and the Japanese yen in addition to the dollar, the dollar remains the settlement currency of choice as it is the most liquid and yet the world's "unofficial" reserve currency. Between SDRs and the dollar-denominated oil trade, the US Fed has created a global demand for it's dollar-Ponzi scheme.
SDRs do not stand-alone but are backed by the IMF's money pool, the result of contributions by all 187 member states to the IMF. It is the money pool itself and the commitment of IMF members to honor the SDRs that provide SDRs (and the US dollar) with their (its) reserve status. At Davos, recently, the IMF published an elaborate road map as to how it could establish SDRs as a reserve currency, complete with a bond market, a repo market and other significant elements needed by a full-fledged currency. The IMF indicated it was a long-term process, but it is perfectly possible that the powers-that-be have a much shorter timeline in mind than the IMF is letting on.
There are several upcoming trouble spots that would seem to add to larger economic woes and make the possibility of an international currency more likely. The upcoming EU negotiations regarding an expansion of the bailout fund may go more smoothly than anticipated but only because the Irish government seems to have capitulated in advance of many of the demands for EU "austerity." In fact, the just-elected Fine Gael party, now in a coalition with the Irish Labour party, has announced it will honor previous austerity plans for two years while attempting to renegotiate the terms of the US$150 billion bail-out. The program includes cuts in public sector employment and privatizations of state companies – the IMF model, in other words.
Given that the Irish just threw out its previous government on its ear for negotiating the package that Fine Gael is now determined to honor, the likelihood of significant Irish civil unrest has gone up considerably. Of course, some of what Fine Gael is seeking from the EU remains controversial, including interest rate cuts and the possibility that bond holders after all may be compelled to haircuts for securities held in Ireland's failing banks. But it cannot be denied the possibility of serious unrest within the larger Irish domestic community has gone up considerably.
Saudi Arabia, meanwhile, is facing a "day of rage" and if social unrest spirals out of control in the world's largest producing oil country, then the dollar as reserve currency would surely be in jeopardy. Currently, the dollar's reserve status is based on Saudi Arabia's willingness to maintain dollar exclusivity. By refusing to sell oil in any other currency but dollars, the Saudis (along with other OPEC members) virtually force the rest of the world to use dollars and to keep them in reserve. This in turn basically allows the US leaders to print as much currency as they wish, as inflation can be exported.
The consequences of the fall of the House of Saud would be serious indeed. Whatever hope there is for a world recovery would probably be wiped out by the soaring price of oil. More than that, without Saudi Arabia to enforce the discipline necessary to maintain the dollar-as-reserve currency, there would surely be an increase in currency volatility and corollary swings in the bond markets.
It is surely difficult to establish that all – or any of this – is by design. But the world's economy is in every way an elite construct and one watches with a mixture of awe and disbelief as the gears grind and refuse to mesh with ever-increasing frequency. Whether it is Chinese inflation, Japanese malaise, American recession, European austerity or German frustration – it is difficult to find a place on the map these days that is not suffering with some form of economic unease or downright dysfunction.
Earlier this week an ex-Goldman Sachs Analyst Charles Nenner told the Fox Business network that the Dow Jones would soon sink to a level around 5,000 – probably as the result of a major war to be uninitiated at the end of 2012. Nenner runs his own firm, now Charles Nenner Research Center, and uses computer programs to predict market trends. He reportedly predicted the 2008 financial crisis in 2006. He has now urged clients to get out of the stock market entirely.
Such grim warnings are part of a relentless tide of unsettling news sweeping the globe. It is difficult to resist the conclusion that the Anglo-American power-elite itself is driving hard to establish a level of misery – including fundamental shortages in areas such as food and water – that will drive significant sociopolitical change worldwide – all in the direction of increased global governance and a single world currency. Enter stage left… the UN and the IMF.
The larger question is whether Western populations especially will be apt to acquiesce to such changes, or whether the transition will be waylaid by a general unwillingness of people to be subject such manipulations. We maintain that sweeping programs such as those the elite apparently has in mind are far more difficult to implement in the 21st century than they were in the 20th – thanks primarily to the power of the Internet. That doesn't mean, however, that the efforts of the elite won't continue to be tried.