Tuesday, November 9, 2010

Is hard currency on the way out ? Good Bye.. US reserve currency

"Introducing the new virtual world currency."

This is an interesting news story for a number of reasons.

The new virtual world currency is an index of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity.(So this new virtual currency is a given?)

When discussing reserve currency alternatives to the US dollar, conversation almost inevitably returns to the International Monetary Fund’s “synthetic reserve asset,” the Special Drawing Right (SDR).

However, the SDR basket of currencies is noticeably antiquated in its design, including only the currencies of industrialized nations… namely British Pounds, Euros, Japanese Yen, and US Dollars. This week, foreign exchange manager Overlay Asset Management has announced a currency basket it’s launching in order to offer a more up-to-date “virtual world reserve currency.”

According to the Financial Times:

“[Overlay Asset Management's] Wealth Preservation Currency Index consists of the currencies of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity. The PPP element ensures a higher weighting to emerging market currencies than is commonplace in other currency baskets, with the Chinese renminbi (accessed through non-deliverable forward contracts) accounting for 16 per cent, Indian rupee 6 per cent and Brazilian real 4 per cent.

In contrast the International Monetary Fund’s special drawing rights, the nearest approximation to a global currency, consists purely of a basket of developed world currencies. Overlay says the hedging tool has attracted the interest of sovereign wealth funds, particularly from the Middle East and East Asia, pension funds, insurance companies, wealthy individuals and family offices, while a number of central banks are purportedly keen to use it as a benchmark for their forex reserves…

“…Overlay’s rationale is that investment portfolios are often heavily exposed to the dollar, but many investors have doubts as to whether the greenback can retain its value and remain the world’s primary reserve currency.”

The global “currency war” — as many are calling it — continues to heat up, with no obvious resolution in sight. While it wouldn’t be a simple, quick, or painless process to replace the US dollar as reserve currency, it seems inevitable that calls for just such action are bound to increase, especially if currently loose US monetary policy – including quantitative easing in particular — continues unabated.

You can read more details in Financial Times coverage of how a new world currency index has launched.

How will this affect the US? And the people of the US? And US supremacy? How about all the people of the world? Massive inflation?

How long before hard currency is gone? Making your spending and your life easily traceable and easily controlled?

I also want to add a link to this article by Mike Whitney.
QE2: Last Rites for the World's "Reserve Currency"

Quantitative Easing, Bernake's Op Ed in the Washington Post. Half truths and omissions.
Who really benefits from this move? Wall Street. The banksters.

Quantitative Easing will not reduce unemployment, narrow the output gap, or increase aggregate demand. At best, it will lower long-term interest rates (slightly) and buoy asset prices. That may be good for the stock market.

The reason is that the Fed is locked in a violent exchange-rate war to push down the value of the dollar. Bernanke wants to trim the current account deficit to boost exports. But he'd rather not tell the American people that he's using their currency as a bludgeon to beat trading partners into submission. It's easier just to scribble some gibberish about "generating jobs" and send it off to the Washington Post.

The Fed is at war; that's the truth of the matter. Economist Michael Hudson calls Quantitative Easing (QE) "a form of financial aggression." But Hudson probably understates the case; "monetary terrorism" (moneterrorism?) is probably closer to the truth. QE is flooding emerging markets with cheap capital that's forcing their leaders to take defensive action to protect their economies.
If Bernanke's going to print more money, they'll print, too. Mass competitive devaluation will ignite a full-blown currency war that leaves the present trade regime in tatters and the dollar in the dustbin.


This is from Richard Portes in an article titled "Currency wars and the emerging-market countries":

"If the large developed market countries do more QE, however, then the flow of liquidity to the emerging markets may force the latter to respond. They may try to resist exchange-rate appreciation by intervening in the foreign exchange markets. Here we do have competitive devaluation – the “currency wars”..

Just an excerpt. Read the entire article linked above.

It is better to be informed then be in the dark!

Don't miss the first post today on your "freedom" via brain implants?

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