Friday, August 21, 2015

What are the Keys to Monetary System Change?

This blog follows news and events that might relate to future monetary system change. Having followed this now for over a year and a half, we have settled on two key questions to follow here on the blog going forward. 

1) Will we get another major global financial crisis worse than 2008?
2) Will the SDR used at the IMF some day become a global reserve currency?

There are some important key events that tie in to these two questions what we have identified over the past year and a half. Below is a bullet point list of these key events and then some comments on why they are important and how they are dots that can be connected.


Here is the bullet point list:

-the global sovereign debt problem - global debt is unsustainable long term -
everyone agrees on this - it has to be dealt with eventually - kick the can will not work forever.

- who will deal with the solution to the global debt problem?  the IMF? 
a global committee of some kind (new Bretton Woods)?  Individual nations and central banks on a case by case basis? my bet is on the IMF right now.

-what mechanism will be used to deal with debt that must be written off or restructured?
SDRM or something else. Jared Collins (SDRF University) has excellent information on this topic.

- the fate of the 2010 IMF governance reforms that give China and the BRICS more
influence and increases the number of SDR's. stalled for years now in the US Congress.

- the review of the SDR currency basket to determine if and when the yuan will be added into it. will some other currencies be considered in the future as well? IMF announced delay for implementation of a new basket until Sept 2016.

- will any major institution (central bank, BRICS bank, AIIB, IMF, etc) issue bonds that
are denominated in SDR's.  ****  Watch this very closely!  **** it's a huge signal.

-how does China promote the internationalization of the yuan? do they continue to wait patiently for more influence at the IMF?

- will gold be used directly (part of the SDR basket) or indirectly (supporting various national currencies in some way) as part of any "reset" of the monetary system? lots of speculation out there, but everyone is just guessing right now. the price of gold is a key as well.

note: many of the items above related to SDR's are discussed in more detail in our blog article here


My added comments:

These are the key questions and events that will provide the answers to our two big questions over time. If the debt situation is allowed to go on too long, at some point it will very likely trigger a global crisis. Because the world monetary and banking system is now highly interconnected, any event anywhere in the world could be a trigger point. Jim Rickards calls it "the snowflake that triggers the avalanche" and predicts no one will know which actual event will be the trigger. China and the US both have a vested interest in preventing this despite their differences.

If we do get the crisis, then all the bullet points listed above come into play very quickly because they must be addressed to provide any hope of a solution to the crisis at the IMF. Either the crisis will be addressed at the global level (most likely at the IMF using the SDR) or it won't. If it is addressed at the IMF, all the issues that have dragged on there for years listed above must be resolved very quickly for the nations to move forward on a cooperative solution. They will not have time to keep haggling over them.

If the world (general public) rejects the any kind of global solution (due to loss of confidence in the global institutions), then we move into a truly unknown decentralized world. This is possible if most people blame the existing global institutions/central banks for causing the crisis (or not doing enough to prevent it). It is almost impossible to predict how that would turn out because it would mean the destruction of the existing global monetary system with nothing new ready to replace it. Some people would actually prefer this. Some wouldn't. Most people have not even thought about it, which is what we try to work on here on the blog.

If we manage to avoid another major crisis, the list above is still very relevant. It will just mean that each bullet point will probably be addressed over a much longer time frame. Change will occur more slowly as new technology is implemented over time to facilitate a new and improved banking and monetary system. Decisions on changes could be made not under duress as would exist in a crisis. Under those conditions, the status quo tends to prevail much longer and changes come in incremental baby steps. Each step could take years.

I don't know what scenario will unfold, but I feel very comfortable that the key events and questions listed above are the ones to watch as we go forward. I have reached this conclusion based on a combination of my own research, information from experts like Jim Rickards, Nomi Prins, Willem Middelkoop and others, and input from very knowledgeable sources working in the system. I have taken the combined information from all these sources to come up with the list above. I think it is a very reliable checklist to watch over time and I will follow it here on the blog.

No comments:

Post a Comment