A World Currency for World Trade

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Previously
by Jacob Steelman: The
Continuing Crisis in the NewWorldOrder

 

 
 

In the aftermath
of the global financial crisis (from an Austrian perspective it
is a market correction of the malinvestments caused by central banks
and governments) a lot has been written about the cause of the crisis
and how to prevent it from happening again. In September 2009 the
BBC aired a documentary called "The Love of Money." The
series focused on the daily events that unfolded during the collapse
of the global financial system including the fall of Lehman Brothers
as if this resultant consequence of the crisis was itself the cause
of the global financial crisis. From this it was ultimately concluded
that the greed of the Wall Street bankers and the lack of regulation
were to blame for the global financial crisis. The greed factor
may have blinded many to keep going when the warning signs were
starting to pop up. This is not as unusual as one may think. We
experienced these same phenomena during the dot com boom of the
late 1990s. An inevitability sets in to follow the boom to its end
confident that you will be smarter than all the others engaged in
the same endeavor. While the BBC series concluded, as have many
of the books and articles written by establishment pundits, that
the cause of the crisis was Wall Street greed and lack of regulation,
nowhere in the series did anyone raise a question about the role
of the world's central banks in causing this collapse of the new
world order's financial system.

A year earlier
(2008) in the midst of the imploding US and European financial systems
and the resultant bankruptcies, nationalizations and bailouts the
People's Daily, China's official newspaper, called for a
new global currency to replace the US dollar. Writing in the People's
Daily edition of 17 September 2008 Professor Shi Jianxun of
Shanghai's Tongji University said that “[t]he world urgently needs
to create a diversified currency and financial system and fair and
just financial order that is not dependent on the United States.”
As yet nothing has been done to address the concerns raised by Professor
Jianxun.

Professor Jianxun
was right to express concern about the financial leadership of the
United States and the United States dollar. He should be more concerned
after the comments of Ben Bernanke the other week before two US
Congressional committees (and the IMF's recent report on the US
banking industry's need for more capital infusion) because it is
clear that Mr. Bernanke has no alternative solutions to the ones
he and other central bankers have been using. What about the Chinese
taking world monetary leadership and implementing a new alternative
such as a renminbi backed by a gold standard? It is clear from China's
recent creation of a debt rating service (Dagong Global Credit Rating
Co. Ltd.) that they desire to participate in the financial market
in a much larger way. Certainly a gold standard would bring about
a much more stable world currency than exists with the floating
currencies today and allow producers, distributors, retailers, importers
and exporters in our globalized economy to do what they do best
– provide goods and services at prices global consumers demand.

Should the
Chinese need any support for this I suggest reading an interesting
book on the subject by Nathan Lewis and Addison Wiggin called Gold:
The Once and Future Money
. The book comes in English
as well as Chinese, Korean, French and German editions. In his book
Lewis explores the history of the gold standard (in the US, England,
Europe, Asia and China) up to the modern day and the changes resulting
from Bretton Woods and Nixon's end of the gold standard on August
15, 1971 which created our current "system" of floating
exchange rates. He also has some interesting stories surrounding
various currency manipulations and their impact on various political
events including Wayne Angell's (a governor of the Federal Reserve's
policy board) 1989 trip to Russia to recommend a gold peg for the
ruble. Lewis sees the International Monetary Fund's (IMF) recommendations
of devaluations and higher taxes as responsible for many of the
modern day country or regional financial disasters (for example
the Asian crisis, the Mexican peso crisis, the Argentine crisis,
etc.). The book also has an extract from a surprising 1997 exchange
between Senator Paul Sarbanes and Alan Greenspan, then head of the
Federal Reserve. Lastly, Lewis provides a recommendation for transitioning
to a gold standard which is almost as simple as Nixon's transition
was in taking us off the gold standard. Lewis is a pragmatic capitalist
and keeps his discussion concentrated on the history of the gold
standard and does not explore (except by implication) the broader
libertarian and Austrian discussions about the role of government
in the economy and society.

Lewis argues
from a pragmatic viewpoint that low taxes (including low capital
gains taxes) promote economic growth (he discounts the commitment
of politicians to cut spending) and the gold standard tends to keep
an automatic check on government expansion and inflation. The benefits
of a gold standard in facilitating international trade would far
outweigh, and thus tend to minimize, government intrusions (government
would become less significant in terms of a percentage of GDP).
From a pragmatic standpoint I tend to agree that it is unlikely
that we will get politicians, bureaucrats and special interests
to voluntarily reverse centuries of government intervention and
voluntarily relinquish power but morally and philosophically this
is the goal for which we should be striving in order to maximize
individual freedom as well as economic efficiency. This book is
a must read for all Finance Ministers and anyone interested in financial
history from a currency and gold standard perspective. If you are
a Finance Minister of a country receiving recommendations from the
IMF or its consultants you must read this book. Incidentally, Lewis
would likely support the Chinese taking the leadership in establishment
of a gold standard since he thinks they are less likely to be influenced
by Western agencies such as the IMF and have a better track record
in transitioning to a more capitalistic economy (as compared to
the former Soviet Union which was 10 years behind the Chinese in
commencing their transition).

In 1999 the
US debt was “only” $3.6 trillion; the government was running a surplus
and projecting to pay off the debt by 2015. What a difference years
of large government intervention have made with expenditures for
wars in Iraq and Afghanistan and other large government expenditures
to be paid through inflation of the fiat currency by the Federal
Reserve with the resultant malinvestments which this causes. It
is not surprising then that questions arise about US financial management
and the US dollar. It is time to adopt a global currency for a global
economy — a private asset-based currency rather than a fiat currency
which is subject to political whims, manipulation and wild swings
in value resulting in continuous devaluations, massive malinvestments
and destruction of savings. It is time to return to a gold standard
for a global economy and eliminate the instability of fiat currency,
the uncertainty of floating exchange rates and the game of multiple
currency devaluations by countries seeking to gain some trade advantage.

The technological
and financial revolution which has resulted in a globalized economy
and more open markets among nations has dramatically broken down
trade and other national barriers among countries of the world.
While far from perfectly efficient (due to the vast array of national
protectionist laws and regulations as well as multiple currencies)
we have a global economy in spite of the attempts by governments
to preserve the past with various national barriers. The least-developed
nations can participate in the globalized economy along with their
larger developed neighbors. So why do we still have over 150 national
currencies in the world today rather than one global currency? Why
is this nationalistic barrier to trade still standing? The currency
and monetary system to be used in a modern globalized system of
trade and development is simply too important to be left to the
numerous central bank bureaucrats and power brokering politicians
who have various agendas of a political nature rather than the facilitation
of wealth creation through free trade, free markets, economic development
and prosperity for the people of the world. A global currency should
be in private hands and not under political control as it is presently.

The ruling
elites of the developed countries must have sensed the train wreck
that was about to happen in 2007 and thus began to question whether
or not a private system makes more sense then the current system
particularly in light of the financial crisis which began in August
2007 and remains with us today. In an article published in the Financial
Post November 8, 2007 Benn
Steil
, Director of International Economics for the Council on
Foreign Relations, says that private money is a real possibility
if the United States does not “return to long-term fiscal discipline”
(raise your hand if you think the United States government will
return to long-term fiscal discipline).

“As for the
United States, it needs to perpetuate the sound money policies
of former Federal Reserve chairmen Paul Volcker and Alan Greenspan
and return to long-term fiscal discipline. This is the only sure
way to keep the United States’ foreign creditors, with their massive
and growing holdings of dollar debt, feeling wealthy and secure.
It is the market that made the dollar into global money — and
what the market giveth, the market can taketh away. If…the dollar
fails, the market may privatize money on its own.”

Mr. Steil goes
on to say

“…private
gold banks already exist, allowing account holders to make international
payments in the form of shares in actual gold bars. Although clearly
a niche business at present, gold banking has grown dramatically
in recent years, in tandem with the U.S. dollar’s decline. A new
gold-based international monetary system surely sounds far-fetched.
But so, in 1900, did a monetary system without gold. Modern technology
makes a revival of gold money, through private gold banks, possible
even without government support.”

While it is
arguable (among non-Austrian economists) whether or not the monetary
policies of Messrs. Volcker and Greenspan were sound (many, if not
most, point the finger of blame at Greenspan for today's financial
problems), it is wishful thinking to believe for one second that
Western governments and their financiers, their central banks, will
maintain long-term (or even short-term) discipline in spending and
creating money. Their track record to date is not good and is becoming
worse by the day. The events since August 2007 and particularly
the response by central banks and governments to the meltdown which
began during the week of 15 September 2008 and thereafter clearly
indicates that the prospects for a “return to long-term fiscal discipline”
is poor. In a December 29, 2009 Wall Street Journal Op-Ed
Benn Steil likened the current policies of the Federal Reserve and
the US government to the monetary orgies south of the border which
the US used to condemn. The appetite of politicians, bureaucrats
and governments for expansion of power and spending is too great
to resist and the bureaucrats at central banks are all too eager
to accommodate the demands of the government and the politicians.
It is the reason the world's economy has been on a course toward
economic disaster since the flood gates of fiat currency (initially
paper money and now electronically created money) were opened in
1913 with the passage of the Federal Reserve Act in the United States.

The call for
more global regulation and hence more government intervention is
not the answer. The creation of money and management of the monetary
system should be returned to a free (free from government intervention)
private marketplace in the United States, the Americas, Europe,
Asia, China, India, Japan and all other countries around the world.
As recent events clearly show our property, our wealth and our lives
should not be entrusted to government bureaucrats and power-brokering
politicians who bow and bend to special political interests rather
than satisfy private consumers' demands as does the private marketplace.
Let the private free market determine and provide what consumers
want, what will be money and how the monetary system will function
as the private market does with other products and services provided
in the private marketplace. We would not think of the government
providing our groceries (scarcity and long lines are the rule from
such a system as we saw in the old Soviet Union and as we see in
Zimbabwe today) so why do we allow the government to provide and
manage something as important as our monetary system?

It is time
for a new world financial system of private money and a private
monetary system. Close down government-sponsored central banks in
the United States and other countries and end the government monopoly
of creating money and managing the monetary system which has brought
the world financial system to near collapse. It is time to return
to a private global gold standard for a global economy.

August
3, 2010

Jacob
Steelman [send
him mail
], an American ex-pat, is President of International
Ventures Group a global investment, finance and development company
located in Sydney, Australia.

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