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Will The USD Be Replaced By The SDR Or The CNY As The Next Reserve Currency?

Tyler Durden's picture




 

Jim O'Neill, who did not make any friends within the bear community earlier today, has written an interesting paper on the IMF's Special Drawing Rights, and whether this hypernational currency can ever become a reserve currency as is, and/or with the CNY as a constituent member. While O'Neill as usual focuses on the angle of the "next paradigm" BRICs, and how they will increasingly dominate global economics, he does pose an important question: with the dollar likely to suffer the side effects of either hyperdeflation, hyperinflation, or hyperstagflation, will the next reserve currency be a diluted melange of other flawed fiat constructs (i.e., the SDR), or the currency of the one country, which for all its flaws, still has the cleanest balance sheet backing its own fiat construct. On the other hand, the question of whether this analysis is moot to begin with, and the world will revert to the gold standard as the ongoing crisis of confidence in all paper money flares up, is not raised even once... We wonder (not really) what Jim O'Neill would have to say on that particular issue.

Here are the main bullets:

  • The issue of the ‘international reserve currency’ and the possible role of the IMF’s Special Drawing Rights (SDR) has moved from obscurity to the centre of discussions about the future.
  • Given China’s importance in terms of its share of world trade, the CNY should now be part of the SDR. The case for including it can only become more obvious as this decade progresses.
  • However, actually including the CNY as a constituent of the SDR is likely to remain a challenge without the CNY becoming more widely used internationally, including as a reserve asset.
  • The case for including other BRIC currencies in the SDR, especially the RUB, is also likely to become stronger over the coming decade.
  • Although the Dollar will probably not be as dominant in 2020 as it is today, it is far from clear that it needs to be replaced by the SDR—or by anything else—as the main reserve currency.
  • For the SDR to be attractive to private users, it will need to include the CNY and possibly other BRIC currencies. However, this alone would not guarantee that the SDR would be more attractive to private investors.

The paper is a critical follow up to anyone who found Albert Edward's earlier analysis of collapsing global FX reserves relevant.

Full paper:

 

 

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Thu, 05/27/2010 - 22:34 | 378323 Nolsgrad
Nolsgrad's picture

but the world is better than you think.

Fri, 05/28/2010 - 00:06 | 378402 66Sexy
66Sexy's picture

the globalist agenda gives too much power to a small group of interests; the SDR IMF currency will only lead to oppression. i would say they dont DESERVE such power, because of the inadequacies we're seeing now. theres a possibility the people wont legitimize another currency if its not backed by anything; that why we keep expecting gold to drop and it doesn't.. its the only international currency with any true long term relevance in global trade. they can dictate or threaten all they want; it will fall on deaf ears, just as it is now.

 

the forced indoctrination of a new SDR type currency will only lead to a direct commodity for commodity trade mandate..

 

gold for oil....

 

triforce....

Fri, 05/28/2010 - 00:13 | 378426 Moneygrove
Moneygrove's picture

long fire wood !!!!!!!!! Don`t care about oil !!!!!!!!!!!!!!!

Fri, 05/28/2010 - 11:25 | 379114 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The world is not enough.

 

Thu, 05/27/2010 - 22:42 | 378328 Turd Ferguson
Turd Ferguson's picture

"Although the Dollar will probably not be as dominant in 2020 as it is today, it is far from clear that it needs to be replaced by the SDR—or by anything else—as the main reserve currency."

 

B.S. It is very clear that the $ will be replaced by some type of SDR...the creditor nations will demand it. Oh, and it will happen well before 2020. Try 2011-2012. 

But, wtf do I know? I'm not some multi-millionaire partner at Hell, err..Goldman. I'm just a caveman.

Fri, 05/28/2010 - 08:12 | 378692 MyFriendMises
MyFriendMises's picture

Your wrong, your not a caveman.  You are a worried Grizzly hiding in a cave. 

Thu, 05/27/2010 - 22:44 | 378335 Paladin en passant
Paladin en passant's picture

Would anyone have the slightest interest in the yuan if they didn't have two-point-something trillion dollars of other countries' fiat currencies backing their pieces of paper? 

Isn't putting the yuan in the SDR simply going the long way around to include more dollars, euros and yen?

Seems more like Jim's sucking up to China than thinking things through in the real world.  Please correct me if I'm wrong.

Fri, 05/28/2010 - 08:09 | 378690 tmosley
tmosley's picture

That's like saying people are only intrested in the Yuan because it's strong.

Having a lot of dollars and other FX reserves is an indicator of the strength of their currency, though the mechanism whereby they get it has temporarily weakened their currency.  What is causing their currency strength is their production and net exports.

Thu, 05/27/2010 - 23:05 | 378351 pitz
pitz's picture

Why not the Canadian dollar?

Fri, 05/28/2010 - 00:13 | 378429 Moneygrove
Moneygrove's picture

+10,000

Fri, 05/28/2010 - 07:26 | 378644 Winisk
Winisk's picture

The Loonie seems appropriate.

Fri, 05/28/2010 - 11:05 | 379055 sheeple
sheeple's picture

eh?

Thu, 05/27/2010 - 23:09 | 378359 silvertrain
silvertrain's picture

 I have put alot of thought into this and come up with the same question that tyler poses..At the end of the day its still a fiat system.. My thought is that if times were good and the ptb could duct tape this system together for a long enough period of time to work the kinks out, then it is very possible that tptb/IMF could sneak it in the backdoor and the masses wouldnt even miss an episode of the bachelor.. But if this system comes apart , and its doing so as we speak , then anything other than a hardbacked currency will fly like a lead balloon..You cannot have peoples pensions/401k/retirements go down the drain and then say were going to do it again, this one is prettier though..

  And then on to my other major problem that I see, the US has majority interest with the ONLY veto power, I do not see china allowing us to have all the power, the wont unpeg the usd now because of the chance of being screwed..So, I say maybe way off in the future, but to many kinks right now to work out..But dont worry, Im sure they have something up there sleeve..

Thu, 05/27/2010 - 23:30 | 378377 DeeDeeTwo
DeeDeeTwo's picture

The USD is the only game in town, baby. This is not a "crisis" by historical standards. It's a speed bump. When Merkel invades the Czech Republic while Putin crushes Ukraine... we can call it a "crisis" by historic standards.

The Gulf Disaster is the end of Obama Tragi-Comedy. When the Republicans take over the House in early 2011... the Adults will be in charge again, Special Prosecutors will be appointed, members of this Administration and Congress and Wall Street will begin going to jail... the USD will be just fine, my friends.

And a 10% import tax on Chinese goods will take care of that Paper Tiger.

Instead of hunkering on your haunches in your basement with your gold and cold bowl of rice... make your fortune, baby, this is the opportunity of a lifetime.

 

Thu, 05/27/2010 - 23:34 | 378384 Mad Max
Mad Max's picture

When the Republicans take over the House in early 2011... the Adults will be in charge again

Are you kidding?  When they take over (and it seems almost a sure thing), the only change will be redder power ties worn by the inmates running the asylum.  Oh and those inmates will be a shade whiter, though it won't actually mean anything in terms of their views or actions.

We're several bananas past republic status.

Thu, 05/27/2010 - 23:54 | 378408 RockyRacoon
RockyRacoon's picture

Yeah, the Republicans will fix it all.  I can rest easier now.  Thanks.

Fri, 05/28/2010 - 00:26 | 378448 Mitchman
Mitchman's picture

LMAO!

Fri, 05/28/2010 - 06:30 | 378631 ColonelCooper
ColonelCooper's picture

NO SOUP FOR YOU!!!

Fri, 05/28/2010 - 07:48 | 378675 aurum
aurum's picture

oh yeah the republicans are going be able to manage the 100 trillion + US deficit just fine and king dollar will rise again. it is mathematically impossible for us to service our obligations without significant inflation...but i am probably talking on deaf ears to a person who believes merkel invading the czech republic is far more important than the fall of the 300 + year old UK/US fiat paper ponzi scheme.

Fri, 05/28/2010 - 08:03 | 378684 Canucklehead
Canucklehead's picture

DeeDeeTwo is right on all accounts except the invasion scenarios.  Today, the growth scenario is typical M&A; you take over their banking system.  There is no need to physically invade a country. You want their market.  Fund them in their moment of need.  There is no need for them to thank you later.

The Ukraine is a basketcase that will either go to Russia or to the EU.  The Ukraine is not important.  Germany and the Czech Republic think very much alike and I expect that old Prussia-Austro Hungarian unity from them.  If they don't move to a DM soon, their markets will start to use the USD. It's a digital world.  The banks will convert USD into any currency you want.  Residual wealth will be held in USD.

When all is said and done, Adults will be back in charge.  The "Veterans"  of this financial war will not want it re-visited on their children or grandchildren.  It will be the USD forever.

Fri, 05/28/2010 - 12:08 | 379222 ctiger2
ctiger2's picture

When the Republicans take over the House in early 2011... the Adults will be in charge again

 

I almost vomitted when I read this bit. You're on ZH and you still don't get it?

Thu, 05/27/2010 - 23:29 | 378379 DoChenRollingBearing
DoChenRollingBearing's picture

I too have thought about what, if anything, could be better.

What I should be doing is writing an essay on a grand theory that is jelling in mind (only half-baked now, if you will).  Looks to me like a grand confluence of problems (Peak Resources, shifty police states, apathetic people, chronic deficit spending, unprepared people, fraud and incivility at all levels, etc.) are going to smash the snot out us all!

Some of these ideas and perspectives I have picked up here at ZH.

Thu, 05/27/2010 - 23:53 | 378405 RockyRacoon
RockyRacoon's picture

Your "half baked idea" couldn't be any worse than what we have now! Go for it.

Thu, 05/27/2010 - 23:54 | 378407 Mercury
Mercury's picture

I think you'll end up titling it World War III

Fri, 05/28/2010 - 00:25 | 378446 DoChenRollingBearing
DoChenRollingBearing's picture

Rocky, Mercury, thx for the kind words.  You may have pushed me into doing this.

Fri, 05/28/2010 - 00:34 | 378455 RockyRacoon
RockyRacoon's picture

I have always respected your thoughtful and reasoned posts.  Go for it!

Fri, 05/28/2010 - 00:21 | 378443 AUD
AUD's picture

I wrote a grand theory too!

It's at http://www.goldstandardinstitute.com/sections/articles/nature_of_money.html if anyone is interested.

The rest of the website is good too! I recommend spending some time studying the Real Bills Doctrine. If you don't understand the money market, you don't understand nothin.

Thu, 05/27/2010 - 23:21 | 378372 Apostate
Apostate's picture

They have to print for a long time to keep the government workers from going on jihad.

You could switch to a gold standard for some and keep printing for government workers, but you'd probably have to keep them on some kind of special price-fixing welfare system to protect the purchasing power.

We can speculate, but really, no one knows what the fuck will happen. My guess is that most government workers just go native and become mafia. Really, local governments - particularly in cities - are outgrowths of the old crime families. Rather than deal with the unions and the mob, the government pretty much absorbed them all, legalized the shakedown process, and asserted its monopoly of force.

Thu, 05/27/2010 - 23:58 | 378411 RockyRacoon
RockyRacoon's picture

There used to be a lot of talk about the "good ole boy network".  Remember them?  Believe me, they are alive and well.  They had their bad apples, but for the most part that is what got things done -- when things needed done.  Close organizations of local (very local, like at county level) civil servants who had family members and "buddies" in other government departments.  Those networks will keep a lot of the rowdies from doing damage if TSHTF in earnest.  I've seen them in action and they'll do the job.

Fri, 05/28/2010 - 00:11 | 378423 Apostate
Apostate's picture

Sure, I know the "good ole boy network" from personal contact. I'm rather unimpressed with the lot of them.

I look at the NYPD and I see a lot of heavily-tatted dudes that are indistinguishable from the people that they randomly stop-and-frisk.

Good-ole-boys can't stop drugged-up packs of veterans, recently released inmates, striking transit union workers, the garbage men, and so on and so forth.

The fiat system, as far as I can tell, keeps the hooligans in line, predating primarily on people who don't look good on TV.

Like... from an NYC perspective, how do you think tens of thousands of Black civil servants are going to react after being fired by King Cuomo II? 

They have a network too! They'll go apeshit!

What about the Hasidic Jews who live off of a combination of insane welfare scams, nonprofit scams, protections from labor laws, etc.? These various ethnic/religious gangs have been at peace for a couple decades, but it really won't take much policy change or inflation to put them at each other's throats again. 

This is quite a bonfire of the vanities. 

Fri, 05/28/2010 - 00:19 | 378440 Mad Max
Mad Max's picture

Good points, but the rest of the USA (much less the world) is not NYC.  There are many parts of the USA where the good ol' boy network isn't so bad.  Not the picture of equal opportunity, but not an organized crime system either.

Size of a community and the level of sunshine penetrating it make a major difference.  A huge community with no sunshine is probably the worst possible situation.

Anyway, NYC should get really exciting before long.

Fri, 05/28/2010 - 00:23 | 378441 RockyRacoon
RockyRacoon's picture

I see where you are coming from, and it's a valid point.  My view is more from the hinterland, fly-over country.  Our counties have more grass than pavement.  Local sheriffs run for office from the back of a pick-up truck.  Those are the networks I was referring to.  These fellas won't put up with no city-slickers causing trouble, and they will be very tolerant of my reason why this guy is all shot up dead in my driveway.

Fri, 05/28/2010 - 00:39 | 378457 Apostate
Apostate's picture

Right. I mean, in the hinterland, there's really not much of a police force, anyway.

In the organized crime centers of the US (Washington DC, NYC, various towns in Kleptofornia), it's quite different!

Having been to many of the USA's post-apocalyptic cities, I have a pretty good idea of what may be in store. Particularly if there are insane public-private partnerships for World Bank style infrastructure projects as are being pitched to Cleveland right now.

Already, major hospitals (St. Vincent's first, plenty of other marginal hospitals on the docket) have gone kaput.

I like it because it's my stomping grounds, of course, and I'm looking forward to crashing property prices and some rapid carpet-bagger white flight. 

Fri, 05/28/2010 - 12:22 | 379250 Ragnarok
Ragnarok's picture

Didn't they just sentence the gangster ex-mayor of Detroit?  I mean the guy was a legitimate gangster and mayor. 

Fri, 05/28/2010 - 01:00 | 378474 marc_hanes
marc_hanes's picture

This raises a question I have been turnng over in my mind for a little bit. If things "melt down" or just even experience a momentary "hiccup" of a few months involving the inability to deliver necessary utilities to the citizenry (electricity, water, gas, why even cable TV), what happens to the incarcerated? How are they kept thus? In a longer term horizon, the question becomes, umm, do we let them out? This thought experiment can be extrapolated to many other groups who require special needs (innocently enough) or pose a threat to a citizenry already in chaos. Yes, there is a certain alarmist tone to the question but also a practical one. During anything even close to the breakdown of our regular day-to-day existence, what elements of fairness and ethics will get tossed aside in the name of immediate "safety"?

I feel obligated to finish my initial post with "gold bitches" since that appears to solidify the secret handshake to join the club. Whew.

Fri, 05/28/2010 - 01:13 | 378482 Apostate
Apostate's picture

Sure, they're already releasing tons of prisoners in both CA and NY in anticipation of the budget cuts and consolidations.

I've seen some truly shocking stuff, lately. On my way back from a concert back in February, for example, there was a guy (obviously recently released from prison) standing in front of the YMCA telling young women passing by on East Houston that he was going to knife them. That's in one of the hippest areas of the city. 

My neighborhood is a little crazy, but there have been unusual numbers of aggressive arrests, ridiculous numbers of car thefts, and so on. 

I mean, sure, that's nothing. When I was a kid in the early 90s, the city was supposed to be soft, and I used to go to bed to gunshots, backfires, and car alarms. That stopped in the late 90s and early oughts.

Now, it's coming back. Brutal murders in the parks. NYPD cutbacks. 

A bombshell report by the Village Voice on fraudulent crime reporting statistics (http://www.villagevoice.com/2010-05-04/news/the-nypd-tapes-inside-bed-stuy-s-81st-precinct/).

I guess they can distract people with the specter of incompetent jihadis, but the real issue is that the city is falling apart. Even with the criminal power provided by the discount window privilege, the city economy as a whole is hollowing out. Financial regulation will put the stake in the heart.

I personally like it because it means a lot of old people will be out of a job.

All you have to do is look to the 1970s to get an idea of what's coming - except you multiply it by 100x, and make it global as well. The USA barely held off a full-scale revolution during that decade. It'll take some time for it to get that bad, but - damn right - it's gonna happen.

Bailouts can kick the can down the road for a little while longer, even if it's completely brazen politically. What the bailouts do is keep critical workers (garbage men, utility workers, transit unions) from going on strike.

Eventually, it won't be enough, and there will be sturm und drang.

Fri, 05/28/2010 - 12:21 | 379248 marc_hanes
marc_hanes's picture

Born and bred NYer here, 43 years old, left two years ago, got priced out (even with the requisite Ivy degree). Lived in a 225 sq ft studio on 5th Street and Second Ave for 15 years before moving (rent was about to go over $1,000 and my daddy don't work for Shittybank), if the EV/LES could time warp back to 1991, I'd consider moving back. But until Snake Plisskin makes a bid for mayor I'm out. Only people left from my days growing up in the West Village and then college at CU are the bankers and lawyers (unless they moved to Summit or Scarsdale). They ask me when am I visiting, I say when you buy me a ticket! RIP, Kiev, Sophie's, King Tut's Wah Wah Hut, The World, etc. THAT was the crazy EV/LES back in the late 80's, not some young i-banker puking outside the newest gastropub. Sigh.

Sun, 05/30/2010 - 22:23 | 379612 GoinFawr
GoinFawr's picture

I say keep all the perp's of violent crimes locked up, and release all the minor offenders whose lives have been ruined by the completely ineffective 'War on Drugs' egregious mandatory minimum sentences policies.

In case anyone has any doubts as to when this heinous legislation was implemented, the chart below will neatly illustrate the decade responsible:

http://en.wikipedia.org/wiki/File:US_incarceration_timeline-clean.svg

More of the same:

According to the US Justice Department, "While the number of offenders in each major offense category increased [from 1995 to 2003], the number incarcerated for a drug offense accounted for the largest percentage of the total growth (49%), followed by public-order offenders (38%)."

From http://www.drugwarfacts.org/cms/node/63

 

Say, when was it Dick Cheney started investing in privately run prisons, anyway? And if Halliburton is now officed in a foreign country, does that mean that this whole BP spill could be considered an act of international terrorism? I mean, if it was discovered that Halliburton's contribution to the catastrophe was negligent/deliberate...

Sorry, I know, I know. DC is like so 2008; I should get over it already, and just let it slide along with all the other dupes and rubes. I might as well be suggesting that there is still time to indict GDubyaB and his cronies.

Everbody knows, everybody agrees, but nobody dares, so everybody forgets.

 

Regards

Thu, 05/27/2010 - 23:33 | 378383 Mad Max
Mad Max's picture

There won't be any other reserve currency.  IF the doe-lahr goes (and that's still a big if, regardless of the reasons it should go), no other fiatsco is going to replace it.  Not the euro, not the yuan, not the Canadian or Australian dollars, etc. etc., and the idea of Brazil or Russian fiatscos - are you insane?

No, IF the dollar goes, its replacement will be some hybrid of gold, valuable fungible commodities (oil and wheat, mostly), and limited use of country-specific fiatscos when the user deems that country important to their international trade.  End of story.

As for whether the dollar will go, if I knew that for sure, I wouldn't be posting on here or probably viewing ZH at all.

Thu, 05/27/2010 - 23:42 | 378394 Cheeky Bastard
Cheeky Bastard's picture

You're welcome Jim O'Neil.

Fri, 05/28/2010 - 00:11 | 378422 Slewburger
Slewburger's picture

GS zigs publicly...then zags.

Fri, 05/28/2010 - 00:17 | 378437 Zé Cacetudo
Zé Cacetudo's picture

Request physical delivery of your share certificates.

Fri, 05/28/2010 - 00:18 | 378438 zen0
zen0's picture

In general, alternatives to the dollar as the reserve currency would not materially improve the functioning of the system. While reserve alternatives would increase pressures on the United States to adjust, since "artificial" demand for their assets would be shared with others, incentives for the surplus countries that have thwarted adjustment would not change. The common lesson of the gold standard, the Bretton Woods system and the current hybrid system is that it is the adjustment mechanism, not the choice of reserve asset, that ultimately matters.

 

 The zen0 link above has this quote in it. This makes sense to me. The trials I went through to post this are Odyssian, so pay some attention.

Fri, 05/28/2010 - 07:04 | 378649 silvertrain
silvertrain's picture

 Thanks for the link..I did read it and it makes alot of sense to me..

Fri, 05/28/2010 - 00:31 | 378445 DormRoom
DormRoom's picture

Nixon got off the gold standard because he wanted free-reign to expand the money supply.  The plan since the 60s was to expand the money supply, and build up the military-industrial complex.  Nixon reasoned the Russian would be forced to expand their military-industrial complex, tete a tete. Eventually, as the USSR GDP became heavily lopsided towards miltiary spending, other sectors of her economy would eventually calcify, and she would collapse from within.  This was the economic war plan.  Since the USD was the world's reserve currency, the US could achieve its goal of economic war with the USSR, without harming its own economy.

 

Having said this, the US will never give up reserve currency status, since it has economic war plans against other nations; a prerequisite of which is reserve status.

 

p.s.  It's also why no modern nation will ever go back to a gold standard.  A gold standard would hamper the ability to fund massive military build-up, and pay for operations.  It's why Rome fell.  She eventually couldn't pay for her army because she didn't have enough gold reserves.  She later diluted the gold she paid her legions. Afterwards, vast legions deserted.  And the barbarians walked through the gates with minimum resistance.  It's also why the terrorists are attempting to collapse the global economy by inciting fear, uncertainty, and targetting attacks at critical financial centers.

The great depression ushered in fascism, and Lenin-Moaist-Marxism as an ideological alternative to capitalism.  Great Depression 2.0 will offer fundamental muslims a chance to  offer sharia-fascism as a competing ideological framework to capitalism for the disenfranchised, and alienated masses..  Fukiyama was wrong.  History is not @ its end; A new chapter unfolds.

 

Fri, 05/28/2010 - 00:44 | 378463 Apostate
Apostate's picture

Fukuyama was not only wrong about many things, but downright criminal.

I hold him single-handedly responsible for crushing the potential of biotechnology (at least temporarily) with his scare-mongering about "transhumanism."

Fuck that guy. That fuckwad single-handedly reduced general life expectancies for modern populations by at least 10 years with his inane rhetoric. 

Fri, 05/28/2010 - 02:09 | 378521 ConfederateH
ConfederateH's picture

Later this summer or in the fall the Fed will be forced to make a tough decision:  If they print $Trillions of money to forstall a wave of bank, City, County and State bankruptcies then they will lose the dollar's reserve currency status as countries (critically the Saudi's) refuse to accept the ever more rapidly diluted dollars in exchange for their goods.

So the choice facing the Fed will be to QE and kick the can down the road, or finally let the bankruptcies begin.  They will print, and the dollar will stop being accepted all around the world.

Fri, 05/28/2010 - 08:01 | 378681 Sabremesh
Sabremesh's picture

Having said this, the US will never give up reserve currency status...

That isn't really relevant. The salient issue is whether other countries decide to abandon the dollar, and since the economic hegemony of the US is now at an end, this won't take too long. The American era and the dollar will have been consigned to history by 2020.

Fri, 05/28/2010 - 00:32 | 378453 IAmTheStig
IAmTheStig's picture

I find it ludicrous to mention the CNY or the SDRs to ever be anything meaningful.  Fuck, you can't even convert the red currency, and I'm quite certain that trying to take anything over 10 Maoist Yuan out of the country is grounds for 10-20 in a labor camp on the Mongolian border so what the hell are you talking about integrating it into international trade? 

I'm sure the Commies in the Central Committee/Politburo/whatever you wanna call the dozen or so people running a 1.25 billion+ person country are desperate to take over, er.., um,  I mean have a more meaningful role in international trade financing, but I won't believe it until all of the single moms on welfare start using their SDRs to pay for baby formula.  Everyone wants to shit on the good ol USA (calling us imperialists, bemoaning the "fat-cat bankers", and worse of all calling us capitalists) until that excrement starts hitting them in the face and then they come crying back to us wanting to buy our dollars.  Ya, so how did that diversification program to Euros turn out for ya there Communist China? 

Fri, 05/28/2010 - 01:02 | 378475 sethstorm
sethstorm's picture

Yet another Third World lovefest. 

The only thing likely to replace the USD is the US military - followed by the USD.

Fri, 05/28/2010 - 01:22 | 378489 Myzery
Myzery's picture

If you:

A. Speak English

B. have access to the internet

 

then it's 100% in your best interest that the U.S. Dollar remain the world's premier reserve currency indefinitely. 

 

Any other outcome would drastically alter the lifestyles of you and all your loved ones. You can't even begin to fathom the amount of destruction and change a Dollar deleveraging process would induce.

 

Fri, 05/28/2010 - 01:31 | 378494 Apostate
Apostate's picture

Actually, the first place - no matter how ridiculously tiny it is - to adopt a private-banking gold standard will probably see a stunning increase in its standard of living in a matter of months.

So no, it's not in my interests, or really that of most people in the US that it remains the reserve currency.

This happened to the UK when their empire fell apart. Yes, they had to accept a lower standard of living, and they fell to a bizarre hodgepodge ideology.

But they didn't all die.

The destruction is happening already. Ben Bernanke is ensuring that it happens. It either happens quickly or slightly less quickly.

And, actually, I think most people reading ZH can fathom the amount of destruction that will ensue. You can't make a fucking omelette without breaking some eggs. Maybe this will teach people to read books, learn history, and learn economics rather than watch LOST. 

 

Fri, 05/28/2010 - 01:51 | 378508 DoChenRollingBearing
DoChenRollingBearing's picture

Apostate, you write very good stuff. 

Oh, s%#t!  Yet another ZH-er I have to invite to our drinkfest if/when gold reaches $50k (and disclosure: society has to functioning OK)!

As I get older, my respect for History grows.  Yes, you have to constantly analyze and doubt each piece you read.

Fri, 05/28/2010 - 03:33 | 378569 Hephasteus
Hephasteus's picture

Ya ya. This is right up there with a wifebeater yelling.

You'll never survive without me.

Or a cheater yelling.

You'll never find anyone better than me.

All the people who want to do this do, is fuck up the gulf. Kill people in helicoptors that suck 100 gallons an hour. Blacklist sites on the internet. Post yahoo articles about what to do and not do and say and not say during a job interview, while there's NO FUCKING jobs and there's about to be a whole lot less jobs.

If you want to scare me. Threaten to have Ben Bernanke teach me math.

Threaten to have Jamie Dimon tech me ethics.

Threaten me with all the stupid ideas that i'll be subjected to if all these fuck cunt cia trolls leave posting on this site.

But seriously get out of here with that scared of the dark we can't unwind and forgive debt crap.

If the monetary system is never going to forgive debt than people are just going to have to start getting pushy with every company on this planet. Demand 5 free channels on cable or you'll cancel. Demand double internet speed or you'll cancel. Push them into situation after situation that causes them to go bankrupt after the weakest are knocked off we go hardest for the strong. Never pay taxes. Force tax settlements EVERY TIME. Never pay credit card bills. Force settlements EVERY TIME. Refuse late charges, interest and penalties of any kind on any bill by any one. Force police to only issue warnings for traffic violations until yuo reach 10 major violations within a 3 year time frame and then your drivers license is yanked.

Nickle and dime and drill down margins relentlessly. Entire societies of cheap demanding assholes. Relentlessly and brutally criticize anyone who is critical of this type of behavior at the consumer level while constantly demanding raises, bonuses. Complete cessation of whoring yourself out in a job interview and simply relentlessly drilling every interviewer with why the hell should I work for your piece of crap company. Just make being in charge NO FUN at all. A relentless assult of dis-ease, dis-comfort, dis-gust. Complete and utter abandonment of our armed forces. A dozen times the abuse of returning soldiers of vietnam suffered. Complete refusal of draft.  Explosion of violent threats. Make violent threats so common and so pervasive that there is NO WAY to contain them or work them or control them.

Fri, 05/28/2010 - 01:33 | 378497 I think I need ...
I think I need to buy a gun's picture

gold is the new reserve currency.....all currencies will bounce off it as the gold price goes up it will be an alarm. They have to trash the dollar first then trash it again and again. Then the new system will be put in place. Expect a very high price to begin with as to not compete with the economy itself.

 

I don't know if this is correct but I don't think China wants it heard that somewhere. They already had one currency crisis they just want stability....

Fri, 05/28/2010 - 01:37 | 378502 steve from virginia
steve from virginia's picture

There is no time factor to this mental exercise which is interesting in and of itself. The time factor is of the utmost importance since both SDR's and yuan do not circulate.

What this means is for these to do so would require time - and more notes to be put in circulation sufficient to allow currency equilibrium. That is, there is no scarcity premium attached to them that would distort their value like currency pegs or reserve balances.

This would have to be done while the US cash dollar becomes increasingly hard because of the dollar/crude peg. Remember, dollar price rises in crude oil above the peg cause economic crashes so the soft dollar cannot exist.

Why would any country - even China - accept a pseudo hard currency when they can pine for and never have the real thing? Maybe the other pseudo currencies would be good to buy food ... but, so are food stamps.

More likely is dollars circulating in China which would mean yuan inflation, dollar preference and the wholesale robbery of the Chinese savers.

Fri, 05/28/2010 - 01:43 | 378506 Apostate
Apostate's picture

This is a great point.

The CCP isn't really as strong as it seems. They could easily have a revolt on their hands even more sudden and shocking than those brewing in the US and in Europe.

When you lack a culture of free speech, as in China, violence can erupt swiftly. In the US, we work things out with words (until some Lincoln figure starts blowing people up). Over there, it's a more brittle system. Mao was a historical aberration for China. 

Fri, 05/28/2010 - 01:41 | 378504 palmereldritch
palmereldritch's picture

 

Warning: This comment may be the product of too high a dose of red pills

IMO, Plan A was to establish a new elemental standard of currency to replace gold: carbon

Yeah, that's how arrogant they are, no surprise considering what they've been getting away with over the centuries.  Copenhagen didn't go so well...with the fraud leak and distribution over the Internet, that guilt-based poll tax formerly known as indulgence didn't test too well in the markets...guess that what happens when you're not conditioned to facing opposition and real science instead of religious propaganda...occasionally the parts of the Swiss timepiece don't fit so well together.

Perhaps part of the volatility in the markets is the result of the current lack of that taxation mechanism to soak up the liquidity of fiat money intended to swamp global markets and simultaneously feed the carbon yoke. SDR's may just have been meant as an intermediary holding asset.

Cue The Black Ops crowd and 'Plan B' (turning the screws to effect 'Plan A'): The Deepwater Horizon disaster... cui bono ?..ironically in the long term BP...and the sunny English and Dutch royalists and their investment in 'green energy'...remember Obama has now cancelled all deep water drilling (removing abundant oil at depth from the American market) as well as the offshore Alaska prospects where BP is dominant (for Asian delivery)...expect oil prices to spike and suck up that excess liquidity into USD and GBP (oil bourse currency denominations) until the environmental disaster will act as the tipping point for green energy and the neo feudal global carbon tax mechanism..it's really all about saving the planet!

In the background of course are the same crazies (yeah, I'm talking to you Dick) that are always willing to prove that if things don't go according to the amended plan they'll look to have a world currency based on something more radioactive (Plan C)...total chaos is always in their back pocket and the death cultists live for it and the power they believe it engenders.

I say, hold BP accountable.  Bankruptcy and a collapse of all their carbon tax dreams will ensure that TPTB will continually be off balance until TBTF becomes unacceptable and a proper culling of the zombie banking herd is possible and free market capitalism and constitutional freedoms will again see the light of day.

All criminals need to be indicted and arrested.  Deeds speak and their plans sound like a Greek chorus.

I only hope that if the next Smedley Butler is called to the stage he does the right thing and holds them all accountable.

Fri, 05/28/2010 - 15:35 | 379804 Cathartes Aura
Cathartes Aura's picture

++ pleasure to read someone thinking outside the boxes. . .

Fri, 05/28/2010 - 01:44 | 378507 I think I need ...
I think I need to buy a gun's picture

i would like to add you need a better exchange rate 1215 equals 1 ounce of gold i believe its 6800 yuan equal 1 ounce the us needs its gold valued at at least 5000 and lower pay for its workers and the jobs come back. In other wards trash the dollar.

now as far as oil we may need to change 11 dollars a gallon or countries may require gold for oil. That is another huge issue. I know we are all prepared for that......

Fri, 05/28/2010 - 03:09 | 378544 Trichy
Trichy's picture

Moving the control of currency from the states to the uber state doesn't do shit.

Gold has historically never been a very successful currency.(not saying it is not the only thing you want to hold, no alternatives).

Any currency standard, fiat, gold or other controlled by the state has always made those in control go ape-shit at the printing presses. (Gold has been counterfeited by most states or not audited)

I theoretically like Hayek's idea, but don't see how it could be implemented

http://www.youtube.com/watch?v=fXqc-yyoVKg

Fri, 05/28/2010 - 03:41 | 378574 Hephasteus
Hephasteus's picture

Gold is relatively stable if you get rid of the fractional reserve and compound interest that goes along with fiat. If you stick with that AND have gold the central banks will control over half the gold on the planet in as little as 30 years even if you force them to go out and buy up all the gold they leased out from the 1933 agreement and it leaves them with the 13 trillion of sovereign debt on thier balance sheet.

Fri, 05/28/2010 - 03:09 | 378545 bob resurrected
bob resurrected's picture

OECD currency to float against a BRIC currency with fiscal transfer arrangements for the laggards within each?

Fri, 05/28/2010 - 04:42 | 378587 kaiten
kaiten's picture

It´s not if, but when yuan replaces the dollar as the main reserve currency. It´s only a question of time.

Fri, 05/28/2010 - 05:19 | 378600 johan404
johan404's picture

Can any other currency really absorb all dollar debt?

Fri, 05/28/2010 - 06:03 | 378618 doomandbloom
doomandbloom's picture

fee fi fo farty..i smell an illuminati...

Fri, 05/28/2010 - 06:27 | 378625 phaesed
phaesed's picture

Hola from NOLa.... the place where you truly see the velocity of money in action.

Interesting article, but all conjecture along the same lines that have become euclidean and arrived at the beginning.

I'm still not back in the game, I have another month before my self-imposed ban from my real work is over and then I can be on here quite a bit again. I hope everyone is doing well and best wishes to all.

ps.....

How much credibility do I get for being one of the truly few backers of Treasuries?

yes,yes,yes.... I'm the asshole who says I told ya so. :)

Peace.

Fri, 05/28/2010 - 07:01 | 378646 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

OT:

Apparently free speech is now optional? Ignore the partisan hackery of the link site, and look into it:

 

http://biggovernment.com/tprice/2010/05/27/bloggers-beware-theyre-coming...

Fri, 05/28/2010 - 07:38 | 378667 silvertrain
silvertrain's picture

 Thanks for the link..facebook bound as we speak..

Fri, 05/28/2010 - 07:24 | 378654 GloriousBastrd
GloriousBastrd's picture

Just ran across this and thought everyone would find it interesting: 

A prediction for a pending drop in AUD/USD and a DOW of 6755 by the 4th week of June:

http://www.dailyfx.com/forex/technical/article/special_report/2010-05-27-2239-Equities_and_AUDUSD_on_Paths.html

 

Fri, 05/28/2010 - 07:30 | 378661 phaesed
phaesed's picture

LOL. Highly unlikely given the rigging in the market, although June 21st is a date people should remain aware of and anticipate bad things.

Fri, 05/28/2010 - 07:25 | 378655 GloriousBastrd
GloriousBastrd's picture

double post

Fri, 05/28/2010 - 07:40 | 378669 silvertrain
silvertrain's picture

 Thanks Tyler for this piece that brought to light many views from many sides..Thats what it is all about and I appreciate it..

Fri, 05/28/2010 - 08:03 | 378683 nopat
nopat's picture

I guess I would raise my eyebrows at this, if it weren't already written by Bruce Greenwald and Judd Kahn in "Globalization - The Irrational Fear."  Sounds like someone had company during dinner at Dorsia last night...

Fri, 05/28/2010 - 09:46 | 378836 Clayton Bigsby
Clayton Bigsby's picture

Hey Kiddies - with Europe not even able to hold the Euro currency together for 10 years, give or take, I see no way that nations as disparate as populate today's world order can agree on one supranational currency to hold reserves in - perhaps I'm missing something - any thoughts????

Fri, 05/28/2010 - 10:18 | 378904 silvertrain
silvertrain's picture

 No.. Plus the us would lose rights to print money,much the same as greece and the rest of the euro are in right now.One world bank, no print money..I can see it happening WAY OFF INTO the future, amybe 10 years or more..Not right now..They are awhere of that also, thus the DESPERATE ATTEMPT to hold gold prices down..Silver is going to be the quiet killer however, silver is the one that going to do the damage, because it is being consumed...

Fri, 05/28/2010 - 11:13 | 379080 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

When speaking on the SDR, George Soros, acting on behalf of snake oil salesmen everywhere, said, "It is paypah goll'd!!"  with eyes wide.

They have been up to this trick for quite some time, but only recently at such a momentous cost (absolute FIAT).  If for example, a Christian back in the 11th century wished to make a pilgrimage to Jerusalem from Europe, the Templar Knights would make sure to keep his credit along the way.  The business worked because there was trouble getting their gold passed all those "sneaky" caravans.  Instead, the Knights kept your credit at banks along the journey, divvying out gold along the way.

Fri, 05/28/2010 - 22:35 | 380602 Yardfarmer
Yardfarmer's picture

 

The innate predilection of the IMF for creating crises and then proposing "solutions" for the very conflagrations they have set in motion has been the standard modus operandi from its inception. In this respect it was suggested that the SDR based flexible exchange rates which ensued in 1971 "made it easier for the various national economies to adjust to "more expensive oil". In effect though as with so many other such self-congratulatory dictums, the exact opposite was the case. Artificial shortages of crude oil created the "exogenous shocks" of rising prices for domestic products thus effectively denominating national debt in petro-dollars. Money transferred to petro-producing countries for oil was returned in the United States in Treasury bond investment thus subsidizing the exponetially rising national debt at the gas pump. In less developed countries, the inflows of IMF capital loan investment were soon flowing out in disproportionate amounts to both fund infrastructure and development projects as well as the rapidly accelerating rates of interest payments with the intended and expected diminishment of asset values, local productive capacities and the sequestering of national treasuries.
The IMF explanation of the SDR was to establish a "supplementary reserve asset" as gold and the US$ had become "inadequate to support trade and financial development". Once again in a self fulfilling prophecy, two years later in 1971 the US$ was dutifully and finally severed from any last tenuous grounding in Au and allowed to float along with and against other world currencies while retaining its status a world reserve currency. Originally valued @ .888671 gm. of fine gold, after the collapse of Bretton-Woods, the SDR came to be appraised against the original basket of currencies: Euro, JPYen, English Pound Sterling and US$, based on "exchange rates at noon on the London Market". The new and "bigger" arrangement however involved the subsumption of the dollar into the larger orbit of the IMF/World Bank macro-economic schema. This alignment some four decades later has evolved into its intended objective of ultimately jettisoning the rapidly weakening US$ in favor of the SDR and a "basket" of world currencies with the eventual inclusion of the Chinese yuan (renminbi) as a new reserve currency, an eventuality which Strauss-Khan has recently openly suggested.
It becomes quite obvious that the incremental decades long strategy enacted with the creation of the IMF/World Bank at Bretton-Woods and based upon the Keynesian economic model has finally come full circle. The departure of the U.S. industrial and manufacturing base coupled with job and capital flight along with loss of intellectual properties has been creative of a paper thin consumer-servant economy. A concomitant proliferation of progressive levels of debt, cycled and recycled into a succession of asset inflated bubbles supported only by systemic financial criminality at the Federal Reserve and Treasury with the collusion of supra-national banking cartels, has finally and fatally subverted the economic and social welfare of the people of the United States. That this signal calamity should follow so immediately on the collapse of the Soviet Union and the late 90's sell off of Russian assets under the Clinton administration reveals the IMF/World Bank agenda is rapidly approaching its denouément under the regime of Messieur Dominique Strauss-Khan.

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