International Monetary System … showing more cracks!

It seems that Gordon Brown has forgotten his mission, to save the world!

Leading up to the G20 summit there was a lot of publicity about the changes that were going to be made. Everyone was going to strengthen their regulatory systems, there was going to be a new Bretton Woods agreement. Alas and alack! Once everyone had analysed what changes do to their own position everything just fizzled out. The two countries most needing to change, USA and UK, both found that actually changing things would work to their disadvantage, as a result we simply have the same as before with a little tinkering around the fringes and a lot of printing money.

Bank of England is demonstrating a growing distaste for Quantitative Easing, as the effects become apparent. The extra money in the system is failing to result in a boost to the productive economy and is acting purely as fuel to the speculative economy. The world is showing a distaste for the Dollar as it continues its slide, with the real economy in USA continuing to slide and Government deficit crossing the trillion dollar mark.

Let us look for a moment at the regulatory system in the UK.
There is a clear difference of opinion between Mervyn King and the Government, if about nothing else, then the need to separate Commercial Banking (High Street Banks) from Investment Banking (The Casino environment). When our commercial banks are taking positions (making bets) how can they be regulated? Are the members of the FSA able to quantify the risks being taken? Have they defined a level of risk that is acceptable? How do you decide if a bet on Zero at the Roulette table is a good or bad risk?

We are encouraged by Goldman Sachs showing record profits … made, to a large degree, by betting on currencies. A fairly easy bet from the USA simply go short on dollars and long on Euro and Yen! Can't even be seen as unpatriotic as the dollar must of necessity go down against those currencies for the USA economy to start recovering.

The repeated call from China to get rid of the Dollar as a reserve currency should be a clear signal to us all that we cannot hope that the status quo can carry on for ever. To quote from an article that can be found at (provided by one of the comments to my article on Green Shoots)
"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," .
However much we and the USA might dislike hearing things like that, we should take note as the Governor of the Chinese Central Bank is speaking on behalf of a third of the world's population. We also know that this is a position supported by Russia and probably most of the countries that are creditors to the USA. ( Holders of all that printed money).

In my earlier articles I have consistently called for a system where all countries Central Banks place 5% of their export earnings on deposit with the Bank of International Settlements, which would then become the Central Banker of the World. Yes, this might prove difficult for countries like the USA and UK as they consistently have a balance of trade deficit, however if we don't recognise that our own currencies need to be underpinned by more than our Governments promissory notes we are living in a fools paradise.

Under Gordon Brown the UK has got rid of most of the Bank of England reserves, even worse the Gold was sold at the bottom of the market. The USA have devalued their reserves to such an extent by the printing of money that we might as well call them non existent. Perhaps, this tells us why in spite of being severely affected by the drop in International trade the Euro-zone countries are not seeing a decline in the value of their currency … the individual central banks collectively hold most of the worlds currency reserves outside of China and Japan.

We all know how hard it is when our Bankers start calling in the overdrafts … well the Bankers of the World are China, Japan and the Euro-Zone! The UK debt to the Euro-Zone is currently growing by nearly £30 billion a year almost 70 percent of our annual balance of trade deficit is being financed by Europe. I wonder what would happen if they stopped paying for our exports for a while and just sent back all the UK Government promissory notes they hold?

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