".. based on Special Drawing Rights issued by the International Monetary Fund.
Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week, although the world may not yet be ready for such a radical proposal.”
“The Gold Standard was the anchor of world finance in the 19th Century but began breaking down during the First World War as governments engaged in unprecedented spending”
“It was revived as part of fixed dollar system until US inflation caused by the Vietnam War and "Great Society" social spending forced President Richard Nixon to close the gold window in 1971.
The world's fiat paper currencies have lacked any external anchor ever since. It is widely argued that the financial excesses and extreme debt leverage of the last quarter century would have been impossible - or less likely - under the discipline of gold. “
Today the Dolalr is the World's Reserve Currency. Meaning that all major currencies are based off the dollar. But, the dollar it’s backed by anything (since 1971), which means that the US Treasure can increase the currency supply by printing dollars and effectively cheating the entire world out of wealth. This has not been a problem until the recent decisions by the US Treasure to print and borrow money by the trillions of dollars.
The very idea of returning the world to a basket of currencies that are backed by Gold means that world leaders not longer like the idea of the US Treasure in control of their financial future or of being cheated out of their wealth.
China and Russia are asking for a new global monetary authority, including a global central bank with a global currency - backed by gold.
If several nations were to conspire together and move to a gold based currency basket, it would take away the power of any one single nation to be able to increase the money supply (without mining more gold, which costs as much to mine as the gold produced).
The following is taken from an article I wrote last year:
The only way for a global monetary authority to be powerful enough to manage the global financial system is if sovereign nations gave them the power to limit their control over their own financial system and therefore forcing nations and corporations to follow the policies and regulations of the global monetary authority – which will be the final coffin in free market capitalism.
The establishment of a global monetary authority will need at least the following authorities to oversee and global financial system.
- Become the global regulatory authority over all national authorities – so that all banks have to follow the same regulations.
- Become the global rating agency to rate the risk of assets sold throughout the world – so that one nations rating agency does not lie about the risks of assets within its nation as happen with the US mortgage meltdown.
- Become the global interest rate regulators over all national authorities – so that one nation cannot rob the world by increasing the availability of their currency.
- Become the global authority of currency supply management over all national authorities – so that one nation cannot rob the world by increasing their supply of money printing more of it.
Of course, no sovereign nation would want to give up the power to manage their financial banking system without a fight. But, as the global financial crisis unfolds over the next few years, many nations may find themselves in a very difficult situation which may lead them to agree to the terms of a global monetary authority – in exchange for a pegged currency or some other provision to stabilize their financial crisis and save them from national bankruptcy.
The US better take this as a serious threat. Perhaps more serious than terrorism. America needs to drop the Obama budget, cut spending, cut borrowing and stop printing money before the world takes away our financial influence and forces us to pay our debts and live within our means.