The Approaching Reset of International Currencies
By JC Collins
It has become increasingly clear to even the most patriotic analyst that the last days of American dominance and hegemony are unfolding within the geopolitical reality of Ukraine. All but the most blind amongst the wasted western hordes, comprising America, Canada, and the European Union, can see the approaching thunderclouds on the horizon.
Never has the structure mechanisms and operational methodologies of the west been so exposed and obvious than in the desperate attempts to retain dollar dominance in a world that has become openly opposed to continuing its own subjugation.
Even the propaganda being directed at the western masses is a sad and pathetic simulation of what use to pass for patriotic fervor. The obvious contradiction between the facts and the fallacies is a thorn in the minds of those who pay attention to such matters. Plausible deniability is born from such diametric inconsistences and the western populations have been well seeded.
What isn’t so obvious is that the simplicity of the unfolding events are manufactured by the complexity of a much larger and almost undetectable engineering.
This engineering is directing the flow of events to the ultimate conclusion of dollar fault and a reversal of dominance. There are some obvious giveaways to this scenario, the first of which is the United States refusal to support the agreed upon International Monetary Funds 2010 Quota and Governance Reforms.
There has been much discussion about these reforms on this blog in the series SDR’s and the New Bretton Woods. Many of the readers here have participated in the collection of supporting documentation and evidence to support the thesis that a method of Hegelian Dialectic is being used to herald in a supra-sovereign replacement to the dollar.
This replacement comes in the form of the SDR – Special Drawing Rights – as issued by the IMF. We have covered how both China and Russia have called for the implementation of an SDR system. We have watched as the expected problem/reaction/solution technique has unfolded in the Ukraine and elsewhere.
April has come and gone with no passing of the required Congressional legislation to support the 2010 Reforms.
The G20 has issued a collective statement giving the United States until the end of this year to enact the legislation. Yet both Russia and China, who are implementing currency swap agreements and trade agreements with other countries in an effort to bypass the dollar, are also G20 members.
The actions of Russia and China fit the overall pattern of the IMF’s vocal approach to using aggressive measures to bypass the dollar and remove the American veto power on the Executive Board.
So what are we to think when the G20 gives America a life line?
More importantly, what are we to think that the IMF just pushed Ukraine into action in the eastern region of the country by stating if they didn’t get control of the country than the IMF loan would have to be restructured?
What are we suppose to make of the fact that the central banks of all the countries, including America, Russia, China, Britain, etc., are all controlled by the Bank for International Settlements? See the post “The Bankers Midwife”.
And now we have announcements coming from the BRICS countries that they are in the process of setting up an alternative to the International Monetary Fund.
It all seems like madness and chaos.
Yet it is anything but.
The IMF has been consistently sold as being an American institution born out of the Bretton Woods Agreement at the end of World War Two. It is said that the IMF has always been the tool of western nations to control and direct the economic policies of the undeveloped countries. Point of note being that the IMF has never had a non-European Managing Director.
The 2010 Reforms proposed a restructuring of the Executive Board and a change to the quotas of all 188 participating countries. But what isn’t openly revealed or discussed is the ineffectiveness of the board itself. In actuality the board is too large for any effective group decision making. The 24 permanent members representing all 188 countries is something of an American stooge with the US having majority voting power. If the US doesn’t agree than it doesn’t happen. The 2010 Reforms were not going to make any significant changes to this veto power.
From this we can determine that the warmongering appearance of the IMF this week over Ukraine will ultimately be blame shifted back on America. This will be one of many realities used to strip the US of its power position within the institution.
In essence, the 2010 Reforms were always meant as a red herring which would lead into an even greater restructuring of the IMF to the acceptance of all other countries, including the BRICS. They were never meant to be passed but only to draw the worlds attention to the inherent deficiencies within the institution and the American reluctance to give up power.
The BRICS threat to counter the IMF with their own version is simply one part of the bigger “reaction” process of the Dialectic.
Two opposing versions of the IMF is not competition but economic dysfunction. As stated previously, the two institutions may run parallel for a short period of time but the partition will only lead to a tighter resolution on consolidation of sovereign debt and the implementation of a new fixed exchange rate system based on the SDR as an anchor.
Let’s step back for a moment before moving forward.
The Bretton Woods Agreement of 1944 was set up as a means to economically rebuild the world after the war. All countries agreed to use the American dollar as the reserve currency by which trade would be balanced. A fixed exchange rate regime was put in place and all appeared right with the world.
By the 1950’s it became obvious that the Bretton Woods arrangement really only benefited the western world. The West saw the highest economic growth, full employment, and relatively modest inflation. As covered in the previous posts titled “The New Exchange Rate System” and “Why the Vietnamese Dong Will Reset”, dollar inflation poured into undeveloped countries as a form of dumping grounds.
The disparities and level of dollar printing eventually lead to the threat of other countries moving away from the dollar arrangement. Without getting into all the details, as I’m sure most readers already have a basic understanding of the sequence of events, in 1971 the US removed the dollars peg to gold and by 1973 their was a floating exchange rate system in place. This was the end of the Bretton Woods as agreed upon in 1944.
Floating exchange rate regimes lead to extreme shifts in rates. This effect is multiplied dramatically when the dominant currency has the ability to use institutions like the IMF and World Bank to their advantage.
Also with floating exchange rate systems there is an increase in capital mobility across borders. On the surface this appears beneficial to all economies and is sold as being dynamic and competitive, but in reality it is anything but.
Before explaining that statement further we need to understand two important terms, which also tie in with the conclusion of this essay.
Microprudential Risk is the level of threat to the solvency or economic viability of individual financial institutions.
Macroprudential Policies are implemented to reduce the extreme risk in aggressive financial sector environments.
Most of the readers here will not be surprised that I have introduced two more micro and macro terms, as the opposing paradigms are a major component of what is written on this blog, whether economic or esoteric.
Since floating exchange rate systems lead to an increase in international capital flows, it can be further determined that an increase in capital flows lead to an increase in macroprudential risk, which without offsetting policies, will lead to extreme credit booms and asset bubbles.
This is what the world has experienced under the floating exchange rate system dominated by the American dollar. And all central banks and economies have fallen victim to the regime.
The coming of a new international financial system can no longer be denied. We are now seeing the beginnings of restrictions on cross border capital movements and additional tightening of bank and capital regulations as detailed in the Basel 3 regulations of the Bank for International Settlements. These restrictions and tightening of regulations are the forbearers of a return to a fixed exchange rate regime.
After the 2008 financial crisis the G20 countries conveniently asked the BIS and IMF to develop the framework for a macroprudential policy to reduce risk and implement a new fixed exchange rate system.
It has been my proposition that this new fixed exchange rate system, though likely volatile at first, we eventually settle into the SDR supra-sovereign system. The process of all currencies and commodities unpegging from the US dollar and pegging to the SDR will in all probability happen piecemeal with the Eastern regions quickly jumping on the BRICS bandwagon. The Western regions will eventually be dragged along as both Eastern and Western regimes are consolidated under one massive agreement.
This agreement will also include the restructuring of sovereign debt through the IMF’s Sovereign Debt Restructuring Mechanism, or SDRM.
At some point throughout this process we will see the modification of the International Monetary Fund to more fairly reflect the economic reality of the international community. The IMF will see its first non-European Managing Director, most likely the current Governor of the People’s Bank of China, Zhou Xiaochuan.
Russia is taking the lead role in the dollar destruction script so China can maintain a level of approachability for the restructuring.
Some of the challenges to having an SDR reserve system is encouraging the private markets to trade in SDR denominated assets. This is where the overall allocation of a countries or regions SDR composition will come into play. The inevitability of oil, gold, coal, wheat, rice, etc.., being priced in SDR’s will become more obvious as the new system emerges further.
Another challenge to the SDR system will be in getting sovereign countries to give the IMF the authority to issue SDR’s as it sees fit too when needed. This is the quintessential movement towards a method of global governance.
There has been much conversation on the internet of a forthcoming Global Currency Reset. What we have covered in this essay is in fact what is being referred to as the reset. So many people have been attempting to describe this process in both the simplest terms and complex terms.
On some deep level we all know that the US dollar will not be the reserve currency of the world forever. Our efforts to understand what is coming is giving birth to urban legends and internet conjecture about how it will happen and when it will happen.
Some predict that it is going to happen tomorrow. And its always tomorrow.
Some are certain that we are at least 10 years away from the transition.
Somewhere in the middle I reckon will be the actual event. If indeed there is one specific event which we can point at and say, there, that was the great global currency reset.
Many are so obsessed with what certain currencies are going to be worth after they unpeg from the dollar and peg to the SDR that they are missing out on the most exciting transition that we will ever see in our lifetime.
What will the Iraqi Dinar be worth? What will the Vietnamese Dong be worth? How will all that money in circulation be taken out so that the currency can actually be revalued at something worthwhile?
I get many questions on this all the time and I’ve answered it already to the best of my ability in the post “The New Exchange Rate System”. A large portion of the M1 money supply of all countries will be restructured through the SDRM. This will fix both the sovereign debt crisis and currency crisis with one move. The money left in circulation will be revalued based on each countries SDR composition and defined allocation, determined by economic indicators and fundamentals.
Perhaps cross border restriction on the movement of capital will prevent mass transfers of wealth from one end of the spectrum to the other.
The common denominator to all events, countries and institutions is the Bank for International Settlements. From that observation we can assume that the unfolding world drama is a well scripted stage play to direct populations and industries into accepting the SDR dominance.
The involvement of the United States in the coup which overthrew the democratically elected and pro-Russian government of Ukraine, as well as its manufactured control and abuse of the international institutions which it has dominated since 1944, will soon serve to isolate the dollar. America’s friends will soon turn their backs and join the larger union of emerging economies.
Historians will look back and say that American hegemony died in Eastern Europe. Ukraine is the last American Alamo.
In closing I would like to state that being a Canadian has created strong associations with America for me. Countries are, like global financial institutions, tools of the international bankers. Whether Canadian or American, or Chinese for that matter, we are all victims of a larger process by which our very existence is engineered and sold to us as the only reality.
Patriotism is one of the strongest tools to divide and conquer masses of humanity. This method is very much at play in world events right now. With that being said, with all its probable faults and unfairness, if the new international financial system doesn’t emerge as another fixed exchange rate regime, the world will fall once more into the destructive pattern of a floating exchange rate regime, which will lead to more credit booms and asset bubbles.
The inherent fault in fiat currencies is another matter entirely. Perhaps the SDR composition will eliminate some of this risk, as the macroprudential policies could potentially reduce or eliminate the unfair transfer of wealth, which we call rent seeking, practiced by the small organized elite.
Nevertheless, the dollar is on the way out. – JC