The New Exchange Rate System

Economics, Premium POM36 Comments

M1 Money Supply and Inflation

By JC Collins

Dong to Dollar

Purchasing Power Parity and Arbitrage are two terms that everyone should make themselves aware off as the world’s economy moves closer toward a centralized SDR trade system through the International Monetary Fund with accounts balanced by the Bank for International Settlements.

Purchasing Power Parity is the balance between exchange rates when there is also balance in the domestic purchasing power of the currencies.

Arbitrage is taking advantage of the price imbalances between markets and profiting from the market differentials.

Arbitrage cannot exist alongside Purchasing Power Parity.

M1 money supply refers to physical currency as well as checking account deposits.

For your reference, M2 money is M1 money plus savings accounts and money market accounts.

And M3 money is M2 money plus large deposits and other long term large deposits, such as larger liquid assets as well as short term repurchase agreements.

Keep these terms in mind as we further define the structure and mechanisms of the emerging multilateral system.

As an extension to the SDR’s and the New Bretton Woods series, let us discuss a much talked about and confusing aspect of the system.  When the currencies of the world are released from their peg to the dollar and pegged to the SDR supra-sovereign currency which we have been reviewing, there will in fact be a new exchange rate structure.

What this structure will be has not yet been made available to the general population.  All the talk of specific exchange rates and timing of release of the rates are not founded in facts or accurate information.

And on the flip side of that there are those who are stating that a Global Currency Reset is a conspiracy theory.  To these people those that proclaim such a future “event” apparently do not understand the micro and macro of economic fundamentals or how exchange rates and money supply truly work.

Their argument appears very logical on the surface.  As a country increases its money supply through debt creation and currency printing, the value of that currency decreases.  More money in circulation means more devaluation of that currency, basic supply and demand principles.  So how can a currency revalue upward when there is so much of it in circulation?  Makes sense right?  Wrong.

If the key performance indicators (KPI) of any countries M1 money supply were that elementary, then we would live in a much simpler world.  We can make many examples of why this isn’t the case but none is more obvious than that of the U.S. dollar itself.

If more money in circulation meant a decrease in the value of that currency on the exchange rate market, then the dollar would be almost worthless today, much like the dong and other currencies.  More U.S. debt (money creation) has been added in the last 6 years than the entire history of the U.S. itself, from George Washington to George W. Bush.  Yet the dollar’s exchange rate has maintained itself within a small range of fluctuation.  The reason that the dollar has maintained this exchange rate over the years tells us that there are other KPI’s which need to be factored into the equation when measuring a countries exchange rate and inflation level, outside of direct manipulation of course.

Some of these indirect KPI’s are imports and exports.   And there is no direct relationship between M1 money supply increases and inflation.

Final_Shifted_M1_and_CPI

Since 1944 the U.S. dollar has been the reserve currency which means that international trade imbalances have been settled in dollars.  This forced other countries of the world to hold dollars which allowed the U.S. to export the majority of its inflation.

As the U.S. printed more money, expanding its M1 money supply, the inflation which should have settled domestically was in fact exported to the very same markets that were forced to hold a reserve of U.S. dollars in order to balance their trade accounts.

As we reviewed in “Why the Vietnamese Dong Will Reset”, the State Bank of Vietnam was indirectly forced into devaluing their currency in order to attract trade and also be a dumping ground for U.S. inflation as the Vietnamese people used the dollar instead of the dong in their everyday lives.

As the new centralized system of SDR allocation emerges between now and 2018 we will see less U.S. dollars in the foreign reserves of other countries.  As an example, in the last 5 years Vietnam has decreased their dollar holdings by almost 50% and at the same time have increased their gold holdings dramatically.  Interestingly enough, their SDR holdings also increased by a factor of more than 400%.

The question of what Vietnam will do with the trillions of dong that are now in circulation is a legitimate question.  When the exchange rate of the dong adjusts to reflect the economic reality within the country, these trillions of dong cannot be in circulation, as it would create an M1 money supply that is disproportionate to the actual economic weights used for the SDR composition.

Therein lays the solution to the problem.

Keeping with our pattern theme of transitions from micro to macro states, we start with the process of the dollar, the world’s reserve currency, being printed and exported to the central banks of the world to facilitate trade.  The inflation and exchange rate decreases that would be logically associated with this increase in the M1 money supply is hidden or sunk into the markets of the emerging economies.

As the world shifts towards the SDR system we will see a similar process unfold.  In essence, Vietnam will export their inflation (current M1 money supply) into the SDR bond system just like the United States has been exporting its inflation into emerging markets and countries like Vietnam through trade imbalances.  What we will see is Vietnam slowly begin to buy back the dong in circulation and re-capitalize it through the SDR bonds.

Once a predetermined level has been achieved the rest of the dong M1 money supply will remain in circulation and be pegged to the multilateral SDR and not the U.S. dollar.  In fact we are beginning to see this process unfold already in the numbers we presented above.  This slow trickle will eventually become a stampede out of dollars and into SDR’s.  It will be the same for every country.

The U.S. debt will also be rolled into SDR’s and factor into the overall economic weight of that country’s SDR composition.  This is where the substitution account we referenced in Part 6 of the SDR series becomes invaluable.  This substitution account will act as a transition market for dollars to SDR’s to ensure that current holders of U.S. debt do not see that asset value decrease dramatically as the system shifts.  China will utilize this substitution account just as much as the United States Treasury and Federal Reserve.

China will not be dumping dollars.  They will transition the dollar debt which they hold into SDR’s through this substitution account.  The one aspect that is holding the process up right now in the American Congress (2010 Code of Reforms) is how this dollar to SDR transition will factor into China’s overall SDR composition for the renminbi.

This is one of the hardest aspects of this new system to understand, which is why it is still being negotiated.  It would do us well to spend more time in the future exploring the different angles involved in the Great Consolidation aspect of the Global Currency Reset.  One cannot exist without the other.  It has been intentionally designed this way.

Most don’t know this, but the Syrian pound is already pegged to the SDR, and has been for about 5 years.  One can only speculate if this has something to do with the civil war in the country.

What some analysts don’t factor into their equations is how much the economic system of the world will change, and is changing, as we move towards the multilateral monetary system with all the currencies of the world pegged to the SDR.  For those who doubt the reality of this new system, the volume of information that has been available and is coming available would seem to prove its existence.

The new system will create Purchasing Power Parity and at the same time eliminate Arbitrage.  Arbitrage is one of the economic weapons that the small rent seeking elite use to transfer wealth from the larger disorganized masses.  The M1 money supply will most likely also be redesigned to more accurately measure the weights of the new SDR system.     – JC Collins

36 Comments on “The New Exchange Rate System”

  1. This, by far, is your most comprehensive and far reaching analysis on this subject. I was critical, a bit, on one of your earlier submissions. Not critical per se of your interpretation, but mainly of the reader comments below from the typical RNC Fox News crowd (who admittedly drive me up the wall). These adamant know it all's who fill themselves up with half a cup of knowledge and courage and enter every discussion from "what's in big mac sauce" to "you name it" to somehow tie it to an Obama failure. The dollar becoming a printing press had nothing to do with Obama. Nor, should any educated American be so simple as to think they from their living room couch could see the "dastardly end" and that the Fed or people managing the money supply couldn't. On the one hand, these people believe the government is sophisticated enough to listen in on smart thermostats but stupid enough to simply print money forever.... with NO WAY OUT.

    The WAY OUT is the key. I didn't have all the answers and am learning from and with you, but I have enough very very smart friends, who simply from day one of our awareness as kids were light years ahead of me intellectually who knew enough to tell me this was thought out at least a decade ago and the plan from here goes into the 2020's. This isn't haphazard as the gold sellers want people to think or the people selling books on "what to buy" or others looking to profit of panic. I'm not saying it will be smooth-n-easy or that gold/silver won't rise, etc. etc., what I am saying is anyone with a modicum of sense should have know when the FED opened up the money supply to FULL ON, there was a strategy on what to do once we got through our modern day great depression that like it or not, Bernanke much to the chagrin of a few, guided this country and the GLOBAL economy through. If you are not wading through trash to eat your next meal in a fort with your "community" holed up with AK-47's... he guided you through it... trust me on that, I don't think the American people or people in general will ever realize how absolutely close this thing was to crashing, nor do they fully understand banks don't fail on their own in one part of town. The rally cry of "down with bankers" really meant, "down with me and mine!". most of the worlds kids under 5 in 2008 wouldn't have made it to 8 in my opinion. It would have been that bad with that much chaos, or so i've been told by people a LOT smarter than me. People really don't understand the power of that snowball rolling downhill, until the avalanche is upon them!

    I asked a rhetorical question in my earlier post... just where do all these bright minds so linear in thinking believe all this darn money has been going? I'm glad you answered it here. AND IT IS NOT BY ACCIDENT. Everyone has dirty hands, huge debt, own tons of degraded U.S. dollars. The U.S. flooded the system with it and THAT WAS NOT BY ACCIDENT. That really is a point that surprisingly is soooo lost on so many people too smart not to understand it. It is a next level chess move and i'm glad J.C. Collins that you caught on to it and explained it in such an easy to follow fashion that people can look through the "noise" and understand the aforementioned strategy. The U.S. will not lose it's place at ANY table, and in fact, the more they printed and exported the stronger their position at the future table became and is becoming. Blame that on the wunderkids at M.I.T. and strategists at the alphabet agencies and the powers at the Fed and behind the Fed. Bernanke has been called by many experts, the FOREMOST historian on the Great Depression ANYWHERE in the world. Yet, papa joe on his couch thinks he is seeing something these guys weren't or "had it figured" in a way they didn't? I'm going to say something that some will understand because of experiences and largely education and many others simply won't get it, at least now now.

    People with power, like structure, when given an option of evils, they will choose eventually the lesser evil, which generally is the one that most keeps them safe at night and provides the most steady, smooth and predictable ride over time.

    yes, there will be a reset, a very slow, steady and calculated reset but of all the countries, which "coalition" has shown to have the most steady hand TO KEEP ENRICHING, PROTECTING those in Power and the middle class in general? In my opinion, the game is rigged for that country to continue it's dominance as currency is revalued. I've said it since day one and I see no signs different as they banter, argue and negotiate behind the scenes.

    I really believe to understand this best, one must rid themselves of political affiliations or national affiliations and do as you are doing. Follow the pieces, record the actions, put yourselves in each persons shoes and ignore the "dogma" from guru's who you can tell "have a bone to pick". that is what I like most about your articles J.C. Collins, if you do have a bone to pick - I cannot tell it as of yet. Just factual deep reasoned thinking and I appreciate that. Please don't stop that aspect of your articles. As soon as I detect it on others (we all know the names) it waters down their info as any bias will to any informed mind just seeking clarity and truth.

    One last question, are you familiar or have you become familiar with Al Hodges and his claims (which appear naive to me) about the global currency reset and payout to CMKX shareholders?

      1. I don't believe Johnny was in any way promoting Obama. In fact, I would guess that he doesn't affiliate with something as simplified as a illusionary left right paradigm. Perhaps you're a little bogged down on the right.

      2. wake up! that's all I can say. WAKE UP! You shouldn't be here in this next level kind of thought if you honestly believe in 2 party politics as the answer. I could give a rat's you know what about Obama. It's bigger than him, and if you don't understand that, this isn't the place for you.

    1. Thanks for the great reply Johnny. Your words are encouraging and very much appreciated. In regards to your question about the CMKX, with the little reading I have done on that subject, I would hate to comment. There is little supporting evidence that exists outside the storyline itself. With that being said, I like to give others the benefit of the doubt. So I'm sure Mr. Hodges has the best of intentions. Truth is sometimes found in the strangest places.

  2. "If more money in circulation meant a decrease in the value of that currency on the exchange rate market, then the dollar would be almost worthless today, much like the dong and other currencies. "

    JC - the dollar IS WORTHLESS, you'll soon see.
    The Iraqi Dinar and the Vietnamese Dong were BOTH artificially and purposely devalued - you can easily check on the previous value of both, before we attacked them for their lack of Central Bank compliance. Factor in BASEL III compliance into the computation of each of these (and ALL other) currencies to include ALL of the natural resources - and it is easy to see where the true value is.

  3. KISS~ Keep It Simple Stupid.. This is God's Word coming true! In the End their will be a One World Government and no one will be able to buy or sell without a mark on there hand or forehead.. aka the chip. If anyone receives this mark they will be doomed to hell as this will be the mark of the beast.. It is all in Revelation in the bible.. I pray more people will read about it in Revelation..

    1. And what do all the other ancient texts and books in the world have to say about this Christian perspective? Many may read the Book of Revelations but very few will understand the symbolism and what it truly pertains too. Hint: We're all the beast.

      1. Yes the book of revelations is notorious to interpret, and mostly informed by much older prophecies from Daniel, Zechariah and others.

        It is, in part, encrypted revelation for believers in the 'last days' which accounts for why they have always confused the Church.

        Though even a hardened skeptic must realise some form of corrupt one world government (cough, j3suits) could easily be the outcome after the panic when this house of cards comes down. The power is too seductive for some people.

    2. Food for thought:
      I think the biggest deception about the "Mark of the Beast" is that most people think it is a literal or physical mark or a micro chip. How about thinking outside the box for a moment. What if the "Mark" in the hand for instance, is a simple hand-shake? Like an agreement between 2 people or simply "accepting" a certain condition? AND the "Mark" in the forehead...what if that is referring to a decision of the mind? Like reasoning out something, making a decision or the acceptance of a certain condition related simply to surviving? What if it was simply making a decision to accept a certain condition set before you? What if all peoples of the earth were forced to worship on a specific day mandated by a world leader, made into law and enforced by a "One World Government" punishable by death if violated? Rather than worshiping on the true Holy Day of the One True God? Do we really think that it would be as simple as a micro chip? The devil is much more clever than that. Remember, he is a master of deception....something to think about.

    1. AV, I don't contribute my essays to any other site. Though there are some sites, like Dinar Recaps, which post them. I don't mind as long as they include a link back to the original site. We are all seeking truth and understanding, and frankly, I'm extremely humbled by the amount of attention my blog has received.

  4. JC; do you believe the individual revaluations like the Dinar or the Dong can be rolled out prior to the ratification of the IMF Reforms by the U.S? Or could these revaluations possibly take place ahead of the boarder GCR which requires ratification?

    1. There may be a few ways forward on this. All currencies may shift to the SDR at the same time, or one at a time. The fact that the Syrian pound is already pegged to the SDR could be a sign of a piecemeal approach. Though my instinct is telling me their will be a unified approach to the transition.

  5. I appreciate your analysis but your timing out through 2018 seems a stretch given where we are. The Fed's taper, Basel III & Dodd Frank are sucking the leverage out of the system, the flow of gold is slowing down into backwardation in GOFO and as EM currencies are getting hammered and as credit China's bubble is ready to pop they are net selling UST at a faster and faster clip which could suck Japan in as well. All of this is happening as they are pulling in the credit at the downturn of the 4-6 year credit cycle, just at the point where in a Keynesian system they should be priming the pump.There are major disruptions coming this year. The derivatives will unravel just like they did in 2008. How do you see this lasting 4 more years? No way.

    I read your perceptive thoughts to give myself a reason to be hopeful. But transitions like the one you are describing do not happen peacefully. The USD's reserve currency status arose organically after the war by virtue of having possession of 80% of the world's gold. But the transition to the petrodollar was a backroom deal patched together with Scotch tape that created massive imbalances through the floating exchange rate mechanism. It allowed the expansion of debt and subsequent consumption of world resources never seen before in world history. Unfortunately for the bankers (and us) the world is finite and the resources to account for all of that debt do not exist so "structural adjustments" and "internal devaluations" will be necessary and will cause massive social unrest. As the bureaucrats and bankers exchange their paper in a way like you describe the world beneath them will be burning like Kiev is at this moment and their agreements will go up in smoke.

    1. Clive,
      Very good summary. I believe there is going to be great upheaval, including major disruptions in the supply chain. Inflation will be disastrous. I just don't see this readjustment going well. There are so many examples of what happens when there is a currency crisis that I think is is foolish to believe that "this time it will be different."

  6. JC, a very well written piece. In fact very good posts! Under the Freegold paradigm, physical gold will be the Storage of Value (for long term) while currencies whill function as Money/Medium-of-Exchange for all trade. Our fiat currencies serve this function in an excellent manner, but it is not a good Store of Value for the long term - which is needed by people who scrimp and save for their future. By decoupling gold from all currencies, it can then serve as a true store of value.

    The SDR is a good Transition Currency for International Trade Settlement. As you indicated, it will be revised to be composed of a basket of currencies, and all currencies will be pegged against it. Doing so will eliminate the FOREX manipulation and grand theft. Each country's currency value will then be evaluated on a constant basis by an entity (e.g. The BIS / BRICS Bank / IMF / ???) and the Conversion Rate between each currency to the SDR will be published. This means a stable exchange rate between world currencies, without the volatility of daily/hourly Foreign Exchange as happens today.

    The SDR can be then be pegged to physical gold on a floating basis. Never to go down, only up - as gold constantly revalues itself to absorb and store the complete world wealth, including physical goods, energy, and labour.

    1. It's my feeling that the emerging SDR system will play out for 10 or more years, slowly degrading back into full fiat, before we see a direct peg to the value of gold. Gold will have its day but I don't think we there yet. Either way we are in for a very interesting few decades.

      1. Mr Collins, I am very young in the studies of the SDR and Global economies. Please forgive me if my question is "simple". Is it true that Iraq is now using the SDR currency as it is stated on the CBI website?...and does that mean that its currency (the dinar) will not revalue?

  7. Thank you Mr. Collins for your work in your essays and making them available to the public. Prior to reading the fine articles here, my knowledge and understanding in this area were very limited, with exposure only to basic US economics and markets. I appreciate your very well written articles and also the associated discussion. Thank you again.

  8. This was the finest explanation of how the economic and political structures are playing out...and the insight is remarkable. I was impressed by your ability to take complex mechanisms and break them down for people like me. One thing to consider...is that you decouple human emotion and motive in explaining the path forward. The system in place has more than brilliant minds driving the bus. They have an agenda.... and sadly, there are things like good and evil...which you ignore, perhaps to lend more study to the explanation of the machine. In this there is removed the suffering of the people. In Scripture, the wild beast is described for us quite clearly...it is governments. Daniel..... I'm sure I'm rambling a bit cause its on the fly....but kudos to your insight, and thanks for sharing.....but remember this... Jer 10:23 Perhaps, with that in mind...when it begins to unravel....there will be no one person to predict the outcome...which may be quite different than intended

  9. Hi Collins,

    Sorry, sorry , the first message I was wrong , with a message which told him that KEN worth reading your articles .
    Ken also has an interesting vision of the world of geopolitics .
    His blog is here : http://blog.redefininggod.com/2014/01/23/the-blood-cult-and-2014-welcome-to-the-global-universal-church-and-your-new-motherfather-god.aspx
    -------------------------

    Thanks for your very clear looking items that helps to understand what happens behind the curtains .
    I follow you since your items have reached the blog of Benjamin Fulford Spanish version where active in this blog but agree with Benjamin .
    I would like to ask what you think about THE WHITE DRAGON ?
    ( WHITE DRAGON SOCIETY - CHINA) .

    Honestly I see em Global Loans in the world, is that GOLD is used as bait to lie again to the people who have confidence in a new currency or a new system.
    Now that the dollar is a ruin , want a basket of SDR currencies linked to gold to continue with the globalist agenda.
    Unfortunately the BRICS are the victim of this new system , the way in which globalization NOM can be extended not only to the western world but the whole world .

    GREETINGS .
    George

  10. Gatatitude for all the facets of perspective you adventure thru JC, This may be wistful thinking but I would like a consideration of it, since I never read about it anywhere, "This is one of the hardest aspects of this new system to understand, which is why it is still being negotiated." (BRICS).Russia forgave 80% of Cuba's debt, what about China forgiving some of the US debt since hard asset acquisitions and international futures contracts as well as ownership in big 5 banks have been secured by China? With reforms in place, stability enforced by the multilateral structure, seems worth concidering.

  11. I believe it would be very reasonable to assume that the foreign jihadi's flooding into Syria has a direct link to Syrian de-pegging of the dollar.

    If we reference two very recent events, the 'revolution" in Lybia and the Invasion of Iraq we see that both of these were direct reactions to their leaders either taking actions against the dollar as the reserve currency or they were just talking about it. In Gaddafi's case just his aspirations at a gold backed African currency was enough to explode his entire nation politically.

    The events in Syria are extremely reminiscent of the same M.O. and given Syria committed the cardinal sin against the dollar I would say that's the most likely candidate. The events in Syria appear so much more logical now to myself.

    I have to ask however, if the Federal Reserve and it's "rent seeking" elites which have grown up around it are the problem and also the macro of the old system to become the micro in the new, what assurance do we have for the new macro reserve system from having the same pitfalls as the Federal Reserve?

    The Fed has facilitated the largest debt bubble in the world, not to mention the largest transfer of wealth from the wealthiest middle class in all of history. The amount of wealth put into the hands of the international rent seekers via QE is astronomical.

    How if the IMF replacing the Fed as the reserve bank of the world going to hedge against corruption of this kind? Could you please elaborate because I can see no real silver lining to this development?

    1. The emerging multilateral financial system will corrupt like all systems that came before it. This has been repeatedly stated here but you can be forgiven for not knowing that as it takes a broader and deeper reading of the site.

  12. I get sick of all the chatter, all the BS all the dribble and NOBODY want to fix it- Stop blaming the system- Man made the system to work for " them". The "Thems" are the snakes against Humanity. CUT THE HEAD OFF THE SNAKES- and the world will be free of tyranny,
    subjugation and Poverty- By not acting in cutting the heads off the snakes you are in fact keeping the foul Corporates in power and keeping their system of bleeding the life out of humanity, so you too are to blame- WAKE UP round up the snakes and shoot them at day break for Crimes against Humanity, Their Murderous Wars, Their Thieving and raping of Nations, and worst of all Their Lying, Deceiving, Manipulation of Mankind's abilities by Subliminal Programming. It's all out there in our faces and we need to do to them , what they have done to us. Now is the time to rise up and cut the head of the snakes once and for all.

    1. That approach hasn't worked out so well in the past, as all the previous revolutions prove. Which is why we have continuously considered the possibility that the only real and lasting solution is for man to reflect inward and develop methods of addressing internal deficiencies. To create divisions within humanity, the them and us mentality, is unproductive, unrealistic, and childish in its approach to the challenges that humanity faces in the coming generations. People at the top and at the bottom of the social structure, and every level in between, are capable of greedy and horrendous actions, as can be attested by the actions of all groups. Actions which are accepted by their peers. Do you not disregard a homeless person in the same manner that a billionaire will dismiss you? Is not the abortion holocaust an assault on consciousness? Man, and groupings of men, create external projections of their own internal deficiencies, and then disassociate from the projections. The space in between both projection and projector broadens and becomes the vastness of despair and lament. Do not be so hasty to call for blood, when it is likely your own blood which will stain the ground beneath your feet. I tire of comments such as yours. They serve no purpose and only add to the confusion and despair. In my short time on this Earth I intend to do what I can to create and promote a deeper understanding of the human condition while focusing on things of consequence. I will forgive those who have wronged others, for I have also wronged. I will embrace the enemy, for the enemy is myself. And those who have committed the greatest of sins require the greatest of compassion. Fear is what drives us all towards acts of violence and greed. Comments like yours only serve to promote more fear. You are doing a disservice to humanity. Forgot what others are doing. What can you do? What goodness and understanding can you promote in your own life? If you are so desperate to fix something, please start with yourself. You will find fellowship here on this site if you choose to do so.

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