Wednesday, June 29, 2016

Monetary System Reform - Various Ideas Exist

This blog is dedicated to following events that might eventually lead to major change in the present global financial and monetary system. My research on this topic indicates that there is much widespread agreement that the present system is at risk from a stability and sustainability point of view. As time goes by I see more and more highly respected economists and monetary system officials (present and former) discuss the risks to the stability of the current system. Also, highly regarded fund managers and investors are speaking out.

We have documented the many warnings along these lines that have been issued by officials at the IMF and the BIS (Bank for International Settlements) over the past 2 plus years. We have discovered that many very high credibility experts including William White, Robert Pringle, Warren Coats, Mervyn King and others have concerns about stresses on the current system including stress caused by the US dollar being the world's primary reserve currency. We have long covered the forecasts by Jim Rickards and Willem Middelkoop that a reset of the present system will be needed under "new rules of the game."

All of this suggests that it is reasonable to suspect that at some point in the future the stress on the current system may lead to reforms/changes to some kind of new system. The whole point of this blog is to watch for that kind of change. 

Another interesting aspect of the research I have done on this topic is that there are a variety of ideas on how to reform the current system should that be needed in the future. Below I will do a bullet point list with examples of some of the various ideas I have seen along with links to where you can find more information if you like.


- Dr. Warren Coats (former IMF) - Real SDR Proposal - Dr. Coats proposes that the SDR used at the IMF might be able to serve as a global reserve currency if it were issued by a Currency Board and with what he calls a "hard anchor". He proposes that a basket of goods be used for the anchor. (see the links for more information and this Q&A interview we did earlier this year with Dr. Coats)

- Robert Pringle - (former Director at The Group of 30) - Mr. Pringle has written an interesting book (The Money Trap) and has a blog also titled The Money Trap. On his blog he talks about an idea for a new global reserve currency (the IKON) based upon the work of the German economist Wolfram Engels. The IKON would be anchored to the global equities market as I understand this proposal. Mr. Pringle also has a fascinating article (read it here) comparing a variety of ideas that have been proposed for a stable monetary system well worth reading. He looks at the pros and cons of several ideas. (note: Robert Pringle advised me by email that he is more concerned that monetary policy makers realize reforms need to take place than anything else. He says he could easily support Dr. Coats SDR proposal if it would lead to some momentum towards reforms. He is concerned that right now there is not much momentum for change in Washington D.C. or in the EU. He has a new blog article out on this today)

- Yanis Varoufakis (former Greek Minister) - proposes a new global currency he calls the Kosmos. We covered his idea here earlier this year. Dr. Warren Coats offered us some comments on this idea in our blog article (click here)

- A return of gold to the monetary system - This idea takes various forms ranging from a return to an actual gold standard (where currency can be directly exchanged for a fixed amount of gold) to more modern ideas for using gold as a type of "hard anchor" in one way or another. Here is an article that provides one example of this concept by F. William Engdahl. Some holding this view see Russia and/or China being proponents of a return to gold in the monetary system (note: Hugo Salinas Price recently made this presentation in Russia at the invitation of the Russian Deputy Prime Minister) 

My added comments: What strikes me in researching this topic is how many high credibility experts see a need to think about future changes to the present monetary system. Clearly, no one idea for reform has yet achieved a consensus of opinion. That has become clear to me from reading the comments of current officials and based on the ongoing discussion we see about various proposals with no indication that any consensus for major change exists right now. Along these lines, in a recent speech to the Bretton Woods Committee IMF Deputy Director David Lipton says:

Let me end by observing that the new normal in global economics has a parallel in global politics. Ian Bremmer of the Eurasia Group has dubbed this a “G-zero”, a world characterized by a “vacuum of global governance”.

It could be that impetus for global change may come from China and Russia. In a recent email I received from OMFIF Advisory Board member Willem Middelkoop, he told me this (and gave permission to publish):

"Russia and Chinese leaders met twice during last week and called (again) for an end to the current (dollar) system. From my contacts with Chinese insiders I know they really understand our problems well and are clearly preparing for The Next Phase (a monetary and geopolitical reset)"

All of this suggests to me that those of us who do not have a background in macro economics, monetary systems, etc. need to learn all we can. If events do some day lead to major changes, we need to understand the various proposals being suggested for reform. The goal of this blog is to provide the average person with the best information we can find from the best sources we can find on this important subject. 

We encourage readers to learn as much as possible and dig deeper into the various ideas. The more we understand, the better the chance that decisions on reform can be made that will improve the system for more people. More and more experts seem to think that will become necessary at some point even if that point in time is still unknown and no clear momentum for major change exists right now.

Added notes: A thank you to Willem Middlekoop and Dan Popescu for a re-tweet link to this article on their twitter feeds. Also, a thank you to Robert Pringle for a link back to our page here listing our articles on SDR's

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