What A Confidential 1974 Memo To Paul Volcker Reveals About America’s True Views On Gold, Reserve Currency And “PetroGold”
What A Confidential 1974 Memo To Paul Volcker Reveals About America’s True Views On Gold, Reserve Currency And “PetroGold”
“Just over four years ago, we highlighted a recently declassified top secret 1968 telegram to the Secretary of State from the American Embassy in Paris, in which the big picture thinking behind the creation of the IMF’s Special Drawing Right (rolled out shortly thereafter in 1969), or SDRs, was laid out. In that memo it was revealed that despite what some may think, the fundamental driver behind the promotion of a supranational reserve paper currency had one goal in mind: allowing the US to “remain masters of gold.”
Specifically, this is among the top secret paragraphs said on a cold night in March 1968:
If we want to have a chance to remain the masters of gold an international agreement on the rules of the game as outlined above seems to be a matter of urgency. We would fool ourselves in thinking that we have time enough to wait and see how the S.D.R.’s will develop. In fact, the challenge really seems to be to achieve by international agreement within a very short period of time what otherwise could only have been the outcome of a gradual development of many years.
This then puts into question just what the true purpose of the IMF is. Because while its stated role of preserving the stability in developing, and increasingly more so, developed, countries is a noble one, what appears to have been the real motive behind the monetary fund’s creation, was to promote and encourage the development of a substitute reserve currency, the SDR, and to ultimately use it as the de facto buffer and intermediary, for conversion of all the outstanding “barbarous relic” hard currency, namely gold, into the fiat of the future: the soon to be newly created SDR. All the while, and increasingly more so as more countries converted their gold into SDR, such remaining hard currency would be almost exclusively under the control of the United States…”
Source: Zero Hedge
“Evidence the yuan is becoming truly global can be found in Rongrong Huo’s passport, which shows the HSBC banker bouncing from Switzerland to South Africa fielding inquiries from a growing number of clients on how they can trade China’s currency.
“The market potential is huge,” Huo, who heads HSBC’s yuan business development for Europe, said in an interview after returning to London from Warsaw. “Companies are asking, how can we make progress on this front? And investors are asking, how can we bring the yuan into our asset allocation? It’s encouraging to see the engagement. It’s about the future.”
Three years after China allowed the yuan to start trading in Hong Kong’s offshore market, banks and investors around the world are positioning themselves to get involved in what Nomura Holdings Inc. calls the biggest revolution in the $5.3 trillion currency market since the creation of the euro in 1999.
Daily yuan transactions surged to $120 billion in April from $34 billion in 2010, making it the ninth most-traded currency in the world, according to a September report by the Bank for International Settlements in Basel, Switzerland.
Merk Investments LLC in Palo Alto, Calif. said it’s adding “as much as” it can of offshore yuan to its $450 million of funds. Union Bank NA, a unit of Bank of Tokyo- Mitsubishi UFJ Ltd., is pushing wealthy clients to diversify their savings into yuan deposits, while CME Group Inc., the largest futures exchange, began offering trading in offshore yuan derivatives in February…”
Source: Vancouver Sun
“Be careful what you wish for. The euro’s founding fathers dreamt of a superpower currency to match the dollar, freeing Europe from US monetary hegemony. Charles de Gaulle grumbled that America enjoyed an “exorbitant privilege” as holder of the world’s reserve currency, able to get away with murder. Now they have one themselves, only to discover that it is a curse.
China’s central bank has been buying fistfuls of euros as it accumulates a world record $3.7 trillion in foreign reserves, and its motives are not entirely friendly. So have the central banks of Russia, Brazil and the Middle Eastern oil sheikhdoms, all aiming to cut reliance on the US dollar, part of a $9 trillion surge in reserves leaking, with tidal force, into the euro.
In China’s case, it is deliberately driving down the yuan to capture export share. You could say China is exporting excess manufacturing capacity to Europe, or, in plain talk, exporting unemployment.
This is why the euro has long been too strong for its own good. It surged a further 9 per cent against the dollar from June to early October, before hitting the wall this week. It has risen 28 per cent against the Japanese yen in a year. This is a bizarre state of affairs for a currency bloc struggling out of recession. Weak prospects normally mean a weak currency, but there is nothing normal about Europe’s monetary union…”
“The rial peg to the dollar was a sensible decision taken four decades ago as the United States was driving the global economy but its floundering finances and internal political bickering is forcing the once mighty nation to lose its grip on the treasury.
Oman would not be the first nation in the Gulf Cooperation Council (GCC) if it were to drop the peg of its currency to the dollar. Kuwait did it in 2007 and so far remains the only country in the GCC to do so. Oman and its regional political allies pegged their currencies to the dollar to minimise foreign exchange volatility, encourage investments and international trade.
True, the peg to the greenback made sense then because all regional countries exported oil and there was a great need to receive payments in the once most stable currency in the world.
Many critics say that sticking to the dollar peg is as good as devaluing the rial since the US currency is losing its strength consistently against major currencies of the world. Oman and its neighbours are big buyers of the dollar dominated assets and the need to diversify its portfolio away from the US currency is very pressing.
Problem of inflation
But intense foreign trade competition from Asian countries, especially China, has changed everything for the United States. Because of that, the dollar peg is forcing Oman and the other four GCC states to import US monetary policies, something that has been contributing to chronic inflation for many years now as well as soaring property prices.
The US government’s shut down this month should be another wake up call for Oman to consider ending its reliance of the dollar. How could Oman continue to keep its faith in the dollar when the US government has no control over its own currency?
Like Qatar, Bahrain, Saudi Arabia and the United Arab Emirates, Oman is paranoid and reluctant about changing a system that once served its economy well. Many financial experts are now convinced that the dollar is no longer the force it once was and the probability that it may regain its former glory is very unlikely. Inflation in Oman would not get any better as the dollar keeps losing both its elasticity and global respect as the world’s key currency.
Another factor that makes sense for dropping the dollar is the fact that Oman has already diverted away from the United States and is increasing turning towards the Asian countries as its major trading partners. Oman is exporting the bulk of its oil to the Far East, and China, the world’s second richest country, is the biggest crude importer.
The Sultanate has already asked to be ruled out in the planned single currency the GCC nations have been considering to form. The idea has not yet been implemented. The idea was to stabilise trade with their international partners without having to worry about the volatility of the US currency. But Oman can follow the example of both Kuwait and Singapore who are now pegging their currencies to an international basket.
If Muscat follows suit, the rial would not suffer the fluctuations in value it now suffers under the greenback regime. It would make sense since its oil exports are well diversified among at least six countries which could be paying in their own currencies. But oil export to the Asian giants is not the only positive part. Oman, in the last ten years, has been increasingly awarding major contracts to Japanese, Koreans and Chinese companies in the petrochemical industries making these countries its key trading partners.
But any decision to de-peg the rial from the dollar depends heavily on Oman’s foreign reserves. The Sultanate’s state reserves are mostly tied in dollars, like the rest of the GCC countries. It would be very difficult for the country to diversify its portfolio away from the US currencies without hurting the economy.
But the positive aspect is that the Sultanate can be least impacted in negative terms when it comes to diversifying its foreign reserves from the dollar since its major international partners are now Asian countries.
The constructive side of trade with the Asian economic giants like China, Japan, Korea and India, is that these countries will be responsible for the inevitable fall of the United States as the biggest economy in the world.”
Source: Times of Oman
“In the midst of the many crisis and challenges facing today’s world, MEPs have sounded off the urgent need of setting up a parliamentary assembly in the United Nations.
“A United Nations Parliamentary assembly is a vital component to strengthen democratic legitimacy of the United Nations,” said centre-left MEP Jo Leinen, during an international conference last week (17 October). Leinen and ALDE party leader Graham Watson have been on the forefront of such initiative since 2007.
Since the 1990s there have been many calls to reform the UN, but there is little clarity or consensus on the way to change the organisation. Some point at the need to reform the UN Security Council, others at the lack of accountability and the need for more democratic scrutiny.
At present, citizens are only indirectly represented in the UN General Assembly by their respective governments. As a result, votes cast do not adequately reflect the political spectrum that exists in each national parliament—including opposition forces. That’s why a growing number of parliamentarians in Europe and elsewhere has called for adding a democratic dimension to the UN system.
In a message issued on the occasion of the conference in Brussels, last week, the President of the European Parliament, Martin Schulz, emphasized the longstanding support for the proposal.
“The European Parliament may serve as a model for how a UN Parliamentary Assembly could develop over time. What once began as an advisory body composed of national parliamentarians is a directly elected legislature today,” Schulz said.
The intergovernmental nature of the United Nations has reached its limits, said Jo Leinen, lamenting the growing global democratic deficit.
To increase people’s trust in the UN and restore its legitimacy, a UN Parliamentary Assembly would be a decisive step towards the introduction of new quality and impetus into international governance, they say.
“Global problems need effective solutions,” said Watson. “No adequate measures have been taken to address the democratic deficit of global governance in general and of the United Nations in particular,” reads the declaration.
The conference suggested that “a global democratic body of elected representatives” should be established “to bring global governance in the pursuit of post-2015 development goals” closer to the world’s citizens…”
“China has overtaken the US as the world’s largest oil importer and goods trading nation. Over the next five years, it will surpass the rest of the world combined in its consumption of base metals.
Given the scale of the country’s consumption of fossil fuels and raw materials, it is only a matter of time before the renminbi replaces the dollar as the primary currency for trading commodities and resources such as crude oil and iron ore.
The debt ceiling farce in Washington and China’s growing reluctance to continue underwriting the US economy by buying up its bonds and adding to America’s near $17 trillion (£10.5 trillion) debt mountain suggests that this tectonic shift in the global trade system could be just around the corner.
Chinese state media are already calling for a “de-Americanised world”. Some experts say that China is plotting to usurp the greenback’s place in global commodities trade. Beijing’s strategy hinges on quietly encouraging traders to bypass New York through the creation of a network of interlinked commodity markets based in the global financial hubs of Hong Kong and London.
“There can be little doubt from these actions that China is preparing herself for the demise of the dollar, at least as the world’s reserve currency,” writes Alastair Macleod, head of research at GoldMoney. A further signal that policymakers are beginning to warm to the renminbi playing a greater role in the global economy came last week when Chancellor George Osborne unveiled a historic deal to allow British investors direct access to China’s markets and allow Chinese banks to expand operations in the UK…”