IMF blueprint for a global currency – yes really
Posted by Izabella Kaminska on Aug 04 16:09.FT Alphaville missed this IMF paper when it first came out in April, 2010.
We’ll cut to the chase and draw readers’ attention to the final bubble in the following chart, found on page 4:
Which means, in the eyes of the IMF at least, the best way to ensure the stability of the international monetary system (post crisis) is actually by launching a global currency.
And that, the IMF says, is largely because sovereigns — as they stand — cannot be trusted to redistribute surplus reserves, or battle their deficits, themselves.
A chart within the document, innocuously titled Reserve Accumulation and International Monetary Stability (PDF link), presents a stepping stone system toward a fully fledged global currency:
The ongoing buildup of such imbalances, meanwhile, only makes the system increasingly vulnerable to shocks. It’s also a process that’s ultimately unsustainable for all, says the IMF.
Or as they put it:
The global crisis of 2008/09, for all its costs, has not jeopardized international monetary stability, and the IMS is not on the verge of collapse. That said, the current system has serious imperfections that feed and facilitate policies—of reserves accumulation and reserves creation—that are ultimately unsustainable and, until they are reversed, expose the system to risks and shocks that a reformed system could minimize.
All in all, the IMF believes there has simply been too much reserve hoarding going on:
Reserve accumulation has accelerated dramatically in the past decade, particularly since the 2003-4. At the end of 2009, reserves had risen to 13 percent of global GDP, doubling from their 2000 level, and over 50 percent of total imports of goods and services. Emerging market holdings rose to 32 percent of their GDP (26 percent excluding China). Twenty-seven of the top 40 reserve holders, accounting for over 90 percent of total reserve holdings, recorded doubledigit average growth in reserves over 1999-2008.
Holdings have also become increasingly concentrated, with over half the total held by only five countries. These numbers exclude substantial foreign assets of the official sector not recorded as reserves, including in sovereign wealth funds (SWFs), and yet invested in liquid, dollar denominated financial instruments, that have grown even more in recent years.1
Of course, in the first instance, the solution probably lies in closer collaboration between sovereigns, most likely via the more active use of such things as special drawing rights, says the IMF.
But in the end, a global currency makes the most sense, the paper concludes — especially since the SDR is currently just an accounting tool that draws on the freely usable currencies of member states , not an actual currency itself.
As they summarise:
48. From SDR to bancor. A limitation of the SDR as discussed previously is that it is not a currency. Both the SDR and SDR-denominated instruments need to be converted eventually to a national currency for most payments or interventions in foreign exchange markets, which adds to cumbersome use in transactions.
And though an SDR-based system would move away from a dominant national currency, the SDR’s value remains heavily linked to the conditions and performance of the major component countries. A more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency. Called, for example, bancor in honor of Keynes, such a currency could be used as a medium of exchange—an “outside money” in contrast to the SDR which remains an “inside money”.
But before you get ready to burn your fiat currency, it’s not actually a turnaround the IMF sees being executed any time soon.
As they conclude:
It is understood that some of the ideas discussed are unlikely to materialize in the foreseeable future absent a dramatic shift in appetitefor international cooperation.
Related links:
Indy and the secret plot to topple the dollar – FT Alphaville
The SDR effect on the dollar, and gold – FT Alphaville
What’s driving paper gold? - FT Alphaville
SDR exchange lift-off – FT Alphaville
A plan to stabilise the global monetary system – Credit Writedowns
This entry was posted by Izabella Kaminska on Wednesday, August 4th, 2010 at 16:09
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The World Turned Upside Down
by Ron Holland
Tradition says when Lord Cornwallis surrendered at Yorktown back in 1781 the British played this tune as they marched out of the fortifications in surrender to the American army. Whether this actually happened is open to debate but the loss suffered by the great British Empire to ragtag American forces certainly seemed to the British like the world had indeed turned upside down.
Today another great empire is getting ready to bite the dust because the power of its media, military, political and financial establishments are perceived to be in the process of collapse. Our brave new world of instant communications, decentralized resistance, an open internet media, political corruption and worldwide recession/depression is causing Americans and our enemies to rethink the benefits and fear of a broken empire that may well be in the death throes of its existence just like the Soviet Union in 1991.
The establishment print media is now worthless with the announcement today that Newsweek sold for a dollar. Andrew J. Bacevich has just written about the failure of American-style warfare and how a determined guerrilla opposition continues to hold back the massive fire-power of what Washington formerly called "shock and awe." The new internet media continues to report on Washington political corruption, excesses and failures as well as what is really going on with Wall Street, the Fed and the dollar.
All the while the feeble attempts by the establishment media to respond are just laughed at and ignored by knowledgeable Americans and foreign investors. You know the confidence is gone when Treasury Secretary, Tim Geithner, visited China in 2009, proclaimed a strong dollar policy and the audience laughed out loud.
Although it isn’t time yet for the Marine Band to play "The World Turned Upside Down" in the Middle East, they and musicians in media, politics and banking should start practicing the tune. Freedom-loving Americans should also continue forward to build their own private institutions and means to survive the fall of the Washington Empire because we need to be ready to protect our families, defend our wealth and restore the dream of our patriot founding fathers.
Now how do the lyrics go?
If buttercups buzz'd after the bee,
If boats were on land, churches on sea,
If ponies rode men and if grass ate the cows,
And cats should be chased into holes by the mouse.
August 4, 2010
Ron Holland [send him mail] is a contributing editor to the Swiss Mountain Vision Newsletter and Swiss Confidential published by Appenzeller Business Press.
Copyright © 2010 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given
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