If there is one thing governments love to do, it is to spend money. If they cannot tax it away from their citizen/subjects, or borrow it from financial markets, then governments turn to that third method of funding their expendtiures: they “create” the desired sums of money.
The G-20 in London last week agreed to expand the quantity of IMF Special Drawing Rights (SDRs) by $250 billion, a 10-fold increase from the amount originally created back in the 1970s.
I discuss the “return” to IMF “paper gold,” as SDRs were nicknamed almost from the start, in a new piece of mine, “IMF Special Drawing Right ‘Paper Gold’ vs. a Real Gold Standard.”
China, Russia and a U.N. committee headed by Nobel Prize-winning economist, Joseph Stiglitz, have called for the dollar to be replaced with a new international reserve currency –the IMF’s Special Drawing Rights (SDRs), or “Paper Gold” as it was nicknamed after coming into existence in 1969.
While it as remained for the most part an imaginary unit of account on the books of the International Monetary Fund, there is now a call for it to eventually become a “real currency” managed and controlled by the IMF. It would create SDRs “out of thin air” to serve as reserves to expand member countries’ national currencies, or to use to maintain artificial foreign exchange rates or cover the costs of imports or debt a country really can’t afford.
But why have a new “paper gold” international currency, when there is an historical international money — gold — that served this purpose very well before the era of government fiat monies beginning in 1914. Of course, a real gold standard would limit what governments around the world love to do — spend money on special interest groups and ideologically-motivated projects.
Which is why governments prefer “paper gold” to a real gold standard that would limit their ability to turn the handle of the monetary printing press.
Of course, the most desirable “policy” would be to “denationalize” money, that is, separate money from the state completely, and leave the choice of a medium of exchange, its supply and value to the market forces of supply and demand.
Alas, governments are determined to maintain their control over the printing of money. And now they will jointly internationalize the process of fiat money creation through the use of this IMF “paper gold,” to do what they love to do most: spend, spend, spend through the debasement of the hard earned wealth and income of the those who peacefully work and produce in the private sector.
Richard Ebeling
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“Paper” and “Gold” are in direct contradiction with each other; but these ‘geniuses’ — ala Thomas Woods — must know something I don’t. I await their scientific, mathematical, and brilliantly logical reasons to why paper IS gold.
Dewind, I think you meant Joseph Stiglitz, not Thomas Woods. Woods doesn’t advocate a fake gold standard, as far as I know.
Yet another international fiat money system isn’t likely to work better than the last ones.
Perhaps what I wrote was confusing. The usage of the word ‘geniuses’ is something that he uses in his book ‘Meltdown’ and in interviews quite a bit.
Ah, ok. I read it a few weeks ago, now, and didn’t remember that.
Is the US hoping to export its inflationary “excess reserves” and dodge a monetary bullet while simultaneously employing an “economic hit man” strategy against developing economies?
The real question I have is will China be able to use its US Treasury bills to buy SDRs from the IMF @ par?
Actually, this is kind of exciting! I can see fortunes being made shorting the IMF’s “paper gold.” I hope to make one for myself.
You know, I would not be surprised if down the road, we see the formation of a world government because countries are too small to be able to handle crisis on their own (Which is true if the only viable option you consider is a more interventionist government). The logical conclusion of such policy is a totalitarian global government. One can only ask whether those promoting those policies are naive or are aware of its conclusion and are hoping nobody will find out (In which case they would probably be just a motley crew of tyrans).
This whole idea is a failure unless the currency is sound and stable. Tell me what country would want to choose just another unstable fiat currency? We have enough of those already.
For an IMF fiat currency to be accepted there would need to be a huge monetary police force to make people use it and I simply do not believe such a force is possible.
The IMF can print all the “money” it wants but if no one uses it who cares.
Don’t be afraid of a one world currency. We have already had one. It was called gold and it was actually administrated by Great Britan in the 1800s.
Governments fail upwards. When a municipality tries to offer subsidized health care and poverty relief out of tax revenues, they soon run out of money. The responsibility for funding these is passed up to the provincial or state level government. When the provinces or states get in fiscal trouble the federal or national government takes over. When they fail, the fiscal problems must be passed upwards to something like the IMF.
At this point however things break down, because the IMF doesn’t have aircraft carriers and missle carrying submarines to make people pay for its stupidities. I imagine that the SDRs as fiat currency will last about as long as an OPEC production quota agreement.
one world currency – ha! – next we’ll be worried about the tower of babel. more to the point, anyone willing to guess when the euro will fragment?
will China be able to use its US Treasury bills to buy SDRs from the IMF @ par?
Perhaps. Or perhaps they can sell them to the Fed and use one of the new foreign currency swaps to switch them out of US dollars…
Dewind hits the nail on the head. The only true gold standard is when gold coins are circulating as the primary currency, period. If people want to print paper represeting a stack of gold and try and trade it then good luck to them but such notes should not be legal tender – any shop should be able to have a sign that says “gold coins only, no gold IOUs”. Perhaps it could be argued there no ‘third way’ to money – either it’s gold coins or some transition to plain paper money. Fiat money is more honest money than ‘gold-backed’ paper money – at least would be no one is surprised when they find they can’t ‘redeem’ for their fiat notes for a fixed amount of gold. Inevitably as the article pointed out the transition from gold coinage to paper money is for the sole purpose of creating inflatable money. This why you want gold money – good luck to the hopeful fossicker because they’re chances of finding so much gold that they won’t have work again for the rest of their lives is none and buckleys. Though an interestingly time was the way silver money was rejected in the days of the ‘cross of gold’ speech because it was believed silver was far more inflationary than gold, that people would pay their gold debts with ever-cheapening silver.
Monetary traffic relies on trust,whether it is done with gold backed paper or whatever.It requires regulated markets with enforcement of the rules.It must have quality.Cheating ,spinning ,false advertising are very detrimental .Lies about the state of the economy during the last 20 years or so have led to plunder management and the coming to the forefront of incompetent people.
We have to go back to basics : a bank is not an insurance company , financial advisor, mortgage broker ,all at the same time.
A rating company must be truly independent.International banks must be big but the local clients may be better of with a small banker. Anyhow you all can sort it out,now that you have ample time to do it.Good luck, dump the CEO,hire a manager..
Disclaimer: I’m relatively new to Austrian/libertarian economics, so I apologize if I misunderstand something/anything.
I’ve heard podcast after podcast and read article after article from the Mises Institute, and all I hear about is how gold (maybe silver too) is THE only answer… and I gather this is tied directly to Mises’ philosophy. I would LOVE to read some serious and in-depth articles about how “competitive,” fiat-based currencies address the issues thru the “free markets,” thru currency traders, international trade surpluses, etc.
The most I ever hear:
1.) vague mention that it is not legal to pay with anything other than US legal tender in the US — is this true?
2.) recent podcast on “free market money” produced in England during industrial revolution
If we could pay in foreign currencies or thru commodities somehow, would it matter whether the USD was tied to gold quantities?
Seems to me, this is what the “wealthy” or otherwise “financially literate” class already do: earn USDs, pay their bills, then convert everything else into broadly diversified interests such as companies (equities and debt), gold, oil contracts, real estate, etc…. anything but USDs under their mattress!
Is it illegal to pay my workers in cigarettes, for example?
(I apologize if this isn’t the correct forum for these expansive questions of mine?!)
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