The End of Credit-Based National Currencies

Economics, Premium POM

Taming the Creature from Jekyll Island

By JC Collins

Ever since reading G. Edward Griffin’s expose on the creation of the Federal Reserve I have been fascinated with the inner workings of the international monetary system.  Though the Creature from Jekyll Island was more about the Federal Reserve, the eventual evolution of the USD as the primary reserve currency used in international trade added a whole new dimension to the covert Congressional shenanigans taking place on that particular Christmas Eve in 1913.

Since the inception of the central banking system back in the 1600’s fiat currencies have been expanding with few limitations.  The expansion of debt even funded the industrial revolution and pushed human development to new heights. With that being said the expansion of debt, or more accurately the expansion of credit-based national currencies, will have to come to an end and be reversed at some foreseeable point in the future.

As recently reported by the International Monetary Fund, global debt now stands at an all-time high. This statement is somewhat redundant as the nature of credit-based national currencies, and the central bank system as a whole, is the continued expansion of debt.  Each day the amount of global debt will always grow larger.  Debt will only reverse when the system begins to change.

The best way to look at this is that all money in circulation has been issued through debt.  Likewise, all money in circulation is reflective of the amount of credit-based national currency in circulation, as the currency itself is issued through debt/credit.  As the amount of debt decreases so does the amount of currency in circulation.

As the new SDR multilateral framework expands and takes over from the existing USD unipolar based framework the amount of credit-based national currency will begin to decrease. This will take years and perhaps even decades.

The sovereign debt solutions which are being developed should be considered the first movements towards the ending of credit-based national currencies.  Foreign exchange reserves will be exchanged and substituted for SDR.  This will correlate with larger issuances of SDR based on increased quota amounts.

Initially the substitution process will appear to be the exchange of credit-based fiat currency with a representation of a basket of credit-based fiat currency, being the SDR.  In that regards little will change.  The fundamental change will take place as the amount of SDR which is allocated to each nation will be based on more than foreign reserve substitution.

In the coming years the amount of SDR allocated to member nations will not be based on the amount of credit-based national currency which exists.  The amount of national currency which will be allowed to exist will be based on the amount of SDR allocation.

The future SDR allocations of each member nation will be measured on such factors and weightings as GDP, trade volume, existing reserves, population, and financial share in the world market.  These metrics will help establish the amount of SDR allocated to each nation.  This SDR allocation will determine the amount of national currency which can be put into circulation.

Eventually the amount of the SDR-based national currency in circulation will outnumber the amount of credit-based national currency in circulation and the fiat money described in The Creature from Jekyll Island will vanish into the monetary past.  When this time comes all currency in circulation will be reflective of the factors and weightings stated above.  These will not be fiat currency as they will be based on actual, real, and measurable fundamentals.

Perhaps in time gold and other precious metals and commodities will be added to the SDR as well.

What has been described here is the transformation of the International Currency System (ICS) which will be required to facilitate the macro transformation of the International Monetary System (IMS) on a whole.  The transformation of both will be completed decades down the road when the SDR basket itself is transformed into the actual bancor global currency which was first suggested during the original Bretton Woods negotiations back in 1944. – JC