The View From Our Whitehouse - Monetary System Reform Watchdog
Saturday, July 9, 2022
Saturday, June 4, 2022
Not much has changed since the last update here. Certainly we have not seen anything yet dramatically impact the present monetary system other than inflation and the Fed attempted response to inflation. None of that implies a major change to the present monetary system. Instead, it is just more effort to try and preserve the existing system by getting inflation under control and continue to prop up the US dollar as the global reserve currency (see Reuters link below). Clearly, Russia (and China along with perhaps other BRICS nations) would be happy to see the US dollar undermined and we can assume they will continue working towards that end. So again, no major change to the status quo so far. If we were to see a major drop in the US dollar or the ruble, that would indicate something worth noting is probably taking place. But not so far. (see chart of ruble vs dollar since sanctions were imposed here).
This blog does not attempt to delve into politics other than to try and assess the political trends in place and how they might impact changes to the present monetary system. Right now, world events seem to suggest that a major "information narrative war" is in full swing in the United States with tangential impacts all around the world. My own take on this is that much of competing information narrative war we see every day all around us is instigated by various competing factions in the intelligence agencies that influence what information flows out to the public, led by the competing US intelligence factions. In my view, all that noise they generate makes it especially difficult to sort out true information from intentional disinformation used by all the competing factions to try and gain more leverage with the general public to their side of the information war. This always ramps up during election cycles and I expect that to be the case again this year.
Conclusion: My conclusion from the above is that the information warriors are engaged for now on swaying the upcoming US elections; so the monetary system is not a prime area of focus for them right now. While whatever happens in the political realm can significantly impact the monetary system, I would be surprised if anything major happens to change the present monetary system before the US midterm elections in November.
I also expect the "information narrative war" to just keep ramping up until the elections and won't be surprised at anything that happens in the political world leading into the fall. Fewer people vote in mid term elections so both sides know they can win by swaying just enough of their base voters who do vote to show up. It is possible to significantly change the balance of power with a relatively small number of voters in the key races that determine that balance of power. As always, both sides will do just about anything to win. Whoever "wins" then immediately faces an ongoing intense effort to undermine their ability to govern. All that moves monetary system issues to the back burner. The only monetary issue even being talked about in the US right now is inflation.
Added note 6-18-2022: Just to insure that we understand that current US policy is devoted to maintaining the global reserve currency status of the US dollar, Fed Chairman Powell makes it clear in these recent remarks as reported by Reuters:
Added note 6-28-22: The Move Away From Western Based Global Cooperation Continues
Added note 6-30-22: New Article by Robert Pringle - We Remain Stuck in a Bad Money Trap, Why?
Monday, May 2, 2022
In the last update here I made the comment pasted in just below dated 4-18-22. Nothing major that I am aware of has changed since. However, in regards to a key point that we may seeing the end of "global cooperation" going forward from here, I did see this article about the idea that Russia and other nations may be moving forward with some kind of plan to back the ruble with commodities (possibly to include gold). Obviously, if Russia and other nations make a move like this, it will be significant news potentially impacting the global monetary system. But I could not help but notice one part of this article discussing a recent interview by a high level Russian official (Nikolai Petrushev). It provides some insight into the very key point I had mentioned below about the weaponization of the monetary system creating trust issues around the world.
Here is the key paragraph with a quote from Russian official Nikolai Petrushev (added underline is mine)
Previous Update as of 4-18-2022:
Friday, March 4, 2022
I have not posted anything here for some time simply because there were no major events likely to lead to major monetary system change taking place. Now, with military conflict underway and the world watching to see if this will be resolved without further escalation, it's reasonable to ask if this situation could be the trigger for major monetary system change. I'll offer some thoughts on that here.
My answer right now would be it is too early to tell. We need to see if this military conflict is resolved without further escalation or not. The trend right now is towards increasing escalation with both sides making moves to ramp up pressure on the other side. If that trend continues, we certainly could arrive at a place where the current global financial and monetary system is destabilized. Below I'll bullet point some things I plan to watch over the coming weeks/months.
- Does limited military conflict expand beyond borders into broader scale military conflict? (not yet)
- Is the oil and gas supplied into global markets by Russia cutoff by sanctions? (so far it's not)
- Does a monetary system alliance emerge between Russia and China to bypass the US dollar? (not yet)
- If so, how does that impact the global reserve currency status of the dollar? (nothing so far on this)
- Are important strategic commodities needed in the East and West cutoff from each other? (not yet)
- Will gold emerge from all this as a more prominent factor in the financial system? (not yet)
- Is the world trending to more "global monetary cooperation" or "competing monetary systems"? (an East vs. West trend seems in place right now rather than global cooperation)
- Is what is happening a simple military conflict or are there deeper chess moves being made?
- Does limited military conflict expand beyond borders into broader scale military conflict? (not yet, but war by proxy creeps closer)
- Is the oil and gas supplied into global markets by Russia cutoff by sanctions? (Yes - US,UK, but not the EU)
- Does a monetary system alliance emerge between Russia and China to bypass the US dollar? (not yet, but some media speculation about it out there)
- If so, how does that impact the global reserve currency status of the dollar? (nothing so far on this, most assume long term impact)
- Are important strategic commodities needed in the East and West cutoff from each other? (Russia says it is making a list and will release it later)
- Will gold emerge from all this as a more prominent factor in the financial system? (not yet, but price has reacted upwards -one source advises me that gold cannot be linked to any currency below $15,000 per ounce if anyone tries to do that)
- Is the world trending to more "global monetary cooperation" or "competing monetary systems"? (an East vs. West trend seems in place right now rather than global cooperation)
- Is what is happening a simple military conflict or are there deeper chess moves being made? (the indications are that this is a deeper chess game beyond just this initial military action by Russia)
Wednesday, September 22, 2021
Not much new here, but Fed Chairman Powell again states the Fed will continue to look at a central bank digital currency (CBDC) and decide whether one seems useful or not. He made it clear that the Fed is in no hurry and does not feel any pressure to move forward on any particular time table.
"Powell noted the dollar’s position in the world and said the Fed is “in a good place” to make a decision on whether to implement its own digital currency. He expressed some concern about the regulatory landscape and said the Fed likely will need congressional permission should it decide to proceed."
Wednesday, August 4, 2021
Readers here know we have long covered monetary system reform proposals from Dr. Warren Coats. Dr. Coats is formerly the head of the SDR Division and is in my view a leading expert in the world on the SDR along with IMF rules and regulations. So we feature him here as the best source of information on this topic.
Dr. Coats recently sent me his new article, The IMF's $650bSDR Allocation and a future 'digital SDR' recently published on centralbanking.com (8-3-2021) that outlines his proposal for the IMF to promote a broader adoption of the SDR as a globally used form of currency. It's important to note that Dr. Coats proposal includes issuing SDR's under currency board rules.
In this article, Dr. Coats is responding to the current proposal to issue a new $650 billion (SDR) allocation of SDR's in response to the Covid pandemic as one way to assist developing nations. Below I have selected a few extracts from the article and then a few summary comments.
"While a strong case can be made for financial assistance by high-income countries to low-income ones to combat the Covid-19 pandemic, an SDR allocation cannot properly be justified on that basis. This link is unfortunate, and mixes the monetary contribution of SDRs to the stock of international reserves with the case for aid to developing countries. Such aid, while potentially justified, is a fiscal issue – and should be addressed as such. The case for a new allocation must be based on “the objective of meeting the long term global need to supplement existing reserve assets”
. . . . .
"As indicated in the opening paragraphs, the case for expanding the role of SDRs in international payments is strong. But, in fact, their role has been very limited beyond the IMF. To become a serious supplement to, if not replacement for, the US dollar in the international monetary system, the SDR would need to be usable for payments by private-sector parties. This would require the creation of private or market SDRs. Following the model of national currencies in which central banks create base money that backs the deposits created by banks (broad money), the IMF’s ‘official’ SDRs could back private digital SDRs.
Article XXII of the IMF’s Articles of Agreement provides that: “In addition to the obligations assumed with respect to special drawing rights under other articles of this agreement, each participant [in the SDR department] undertakes to collaborate with the fund and with other participants in order to facilitate the effective functioning of the special drawing rights department and the proper use of special drawing rights in accordance with this agreement with the objective of making the special drawing right the principal reserve asset in the international monetary system.”
In support of member obligations to make “the special drawing right the principal reserve asset in the international monetary system” the IMF needs to facilitate and encourage the private-market uses of the SDR for pricing and paying for globally traded goods, as well as for denominating financial assets. The breath, depth and liquidity of such uses of the US dollar are important factors in the dollar’s widespread use in international payments and as a reserve currency."
. . . .
Digital SDR currency
"As with national currencies, the internationally issued SDR needs a central issuer of the base money version of market SDRs (M-SDRs). The IMF should oversee the development of a procedure for issuing M-SDRs following currency board rules and backed 100% by official SDRs or by an appropriate mix of sovereign debt of the five basket currencies."
. . . . .
"Banks offering M-SDR deposits/currency to their customers would hold an SDR reserve backing with the IMF SDR trust fund. The base money M-SDRs issued by the IMF trust fund would perform the same payment settlement function as do central banks for the base money they issue, with the critical difference that depositors/participants would be global, rather than national. This would enable virtually instantaneous final settlement of M-SDR payments globally."
Added comments: These proposals may sound as if we are about to see some major changes to the present global monetary system which is what this blog was created to monitor. However, a question that I always ask Dr. Coats when this topic arises is if he sees any signs of movement towards this kind of change. I am quite confident Dr. Coats would know that. I asked him that again and here is his reply to that:
"The IMF has no plans for a digital SDR and they say they are too busy with the allocation itself and related covid lending to focus on my other private SDR promotion suggestion though they might in the future."
This reply is in line with what we have reported here for some time. If anything changes in this regard and I am aware of the change, I will report it here. But I continue to see no indication that this kind of major monetary system change is on the near term horizon. There is no better source on this than Dr. Coats in my view.
Friday, July 16, 2021
In comments to the US Senate, Federal Reserve Chairman Jerome Powell admitted inflation is running higher than they expected and that how to react to that is a "challenge". His comments are reported in this article on Kitco. Below is a couple of excerpts from the article and then a bullet point list of his key comments.
"We don't have another example of the last time we reopened a $20-trillion economy with lots of fiscal and monetary support," Powell said. "The challenge we are confronting is how to react to this inflation, which is larger than we expected. To the extent it is temporary, it wouldn't be appropriate to react to it. But to the extent it gets longer and longer, we" have to continue to revaluate the risks that would affect inflation expectations, and that is what we are monitoring."
. . . . .
Debt was another issue discussed during the testimony, with Powell highlighting that the U.S. is not on a sustainable path.
"Debt is growing substantially faster than the economy. In the long run, that is not sustainable. The laws of gravity have not been repealed. We'll need to get back on the sustainable path at some point. The time to do that is when the economy is strong — unemployment is low, taxes are rolling in. That is the time to do it."
- Inflation is way above the Fed's 2% target - they are "not comfortable" with that
- Current inflation problem is "unique" in history recovering from a pandemic shutdown
- Higher Inflation expectations can lead to higher actual inflation
- Fed will discuss reducing QE if high inflation persists
- Fed will use its tools to fight inflation if necessary
- The laws of gravity have not been repealed
- US debt is growing faster than the economy which is "not sustainable"
- Fed will continue to study a central bank digital currency - not sure if it is needed
- Cyber risks of ransomware attacks is what Powell worries about the most
Monday, June 28, 2021
We have reported here for some time that despite constant speculation about the Fed moving towards a so called FedCoin CBDC (Central Bank Digital Currency), we did not see any evidence such a thing was on the horizon any time soon. Now we have a Fed official questioning why they need one at all as quoted in this article in Yahoo Finance. This fits with all the other evidence we have seen and direct input from experts in the field. Below are a couple of excerpts from the article.
"A top Federal Reserve official on Monday advocated against creating a digital version of the U.S. dollar, questioning the use cases and security of a Fed-issued digital currency.
“The potential benefits of a Federal Reserve CBDC [central bank-issued digital currency] are unclear. Conversely, a Federal Reserve CBDC could pose significant and concrete risks,” Randal Quarles told the Utah Bankers Association Monday."
. . . . .
The Bank for International Settlements (BIS) recently issued this update on global efforts to move forward on CBDC's. While it tries to paint a positive picture about a future for CBDC's, it also lists lots of obstacles and notes that only a handful of central banks have moved beyond just studying the pros and cons. The BIS report also states there are no plans to replace cash and it's just as likely central banks might try using a wholesale version of CBDC's which the public would never see or use just to move money between banks easier. While there is lots of speculation about CBDC's, if you read the actual reports and studies on them, they always list lots of obstacles to overcome and always talk about them as a long term horizon event. Here, the Fed indicates they haven't even decided if they even want a CBDC.
Added note: CNBC offers this more detailed article on these comments. Here is an excerpt:
“First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve CBDC are unclear. Third, developing a CBDC could, I believe, pose considerable risks,” he said. “So, our work is cut out for us as we proceed to rigorously evaluate the case for developing a Federal Reserve CBDC.”
Sunday, June 20, 2021
Former IMF official Dr. Warren Coats offers a new article on the prospects for Bitcoin to function as a currency. He also describes what he believes would an "'ideal monetary regime" in the article. Below is an excerpt from that part of the article.
Tuesday, May 18, 2021
The OMFIF publishes this article which argues that the US dollar will not be significantly impacted by a so called "digital renminbi". Below are a couple of excerpts. I added underline for emphasis.
"More than 50 years after Valéry Giscard d’Estaing lamented the dollar’s ‘exorbitant privilege’ and two decades after the euro’s launch was seen as a threat to dollar domination, the latest mutation has hit – will the digital renminbi surpass the dollar? Adding to the fog are errant questions about whether the dollar’s demise will be fast and furious, and whether it is a winner takes all hegemonic proposition.
Those arguing for a surge in the digital renminbi’s global role seem to view digitalisation as a revolution in the international currency landscape. But large global trade and capital flows already predominantly take place in digital form. Digitalising a central bank currency is not a game changer. But that doesn’t mean that the US doesn’t have much needed work to do in strengthening its payments systems."
"The question facing the US is not how to protect the dollar’s global role. Rather, the US should focus on maintaining a healthy economy. Promoting strong economic performance, restoring buffers after the pandemic, tackling challenges and buttressing robust institutions and openness will ensure that the dollar’s vibrant global role is maintained."
My added comment: While the US has vast political differences, one thing has remained constant so far. No matter who has political power, the US does in fact make every effort to "protect the dollar's global role". So far that seems to remain unchanged with the new Administration. Time will tell us if any real change does take place in that regard.
Wednesday, May 5, 2021
This new report from the IMF confirms a long term trend of gradual movement away from the US dollar continues. At the same time, the report also confirms what has been reported here for many years in that monetary system changes tend to move slowly unless something unexpected forces more rapid change. Below are some excerpts from the report.
"The share of US dollar reserves held by central banks fell to 59 percent—its lowest level in 25 years—during the fourth quarter of 2020, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey. Some analysts say this partly reflects the declining role of the US dollar in the global economy, in the face of competition from other currencies used by central banks for international transactions. If the shifts in central bank reserves are large enough, they can affect currency and bond markets."
. . . .
"Turning to this past year, once we account for the impact of exchange rate movements (orange line), we see that the US dollar’s share in reserves held broadly steady. However, taking a longer view, the fact that the value of the US dollar has been broadly unchanged, while the US dollar’s share of global reserves has declined, indicates that central banks have indeed been shifting gradually away from the US dollar."
. . . .
"Despite major structural shifts in the international monetary system over the past six decades, the US dollar remains the dominant international reserve currency. As our Chart of the Week shows, any changes to the US dollar’s status are likely to emerge in the long run."
Wednesday, April 7, 2021
The IMF is considering a proposal to issue as much as $650 Billion (US) in a new allocation of the SDR. We have covered the SDR extensively here over the years since many have predicted the SDR could some day be a key part of a global monetary reset. One thing that becomes clear if you research the SDR is that there are a lot of misconceptions about the SDR the rules that govern them at the IMF. Here, our approach was to simply find one of the leading experts in the world on the SDR to explain the SDR and how it actually works.
Dr. Warren Coats was the head of the SDR Division at the IMF and there is no better expert on things SDR related. Dr. Coats recently posted this article on his blog to both explain the new SDR allocation proposal and offer his take on it. Below are a couple of excerpts from the article.
"The IMF’s Articles of Agreement require a long-term global need for additional reserves to justify an allocation. Thus, the Managing Directors call for a new allocation is “based on an assessment of IMF member countries’ long-term global reserve needs, and consistent with the Articles of Agreement and the IMF’s mandate.” “IMF Executive Directors discuss new SDR allocation” While I think an allocation is justified and useful at this time, the underlying motivation of aiding IMF members to fight the economic impact of the Covid-19 pandemic is unfortunate."
The aid motivation is revealed in a Wall Street Journal editorial on March 24, 2021, which unfortunately misrepresents important features of the SDR. “Special dollars for dictators”
Setting aside for a minute that I have long proposed replacing the SDR allocation system described in this article with issuing SDR under currency board rules (i.e., only and to the extent demanded by the market and purchased by the market at market prices), there are a lot of mistakes in this article."
. . . . .
"The IMF Articles of Agreement in which SDRs and the rules for using them are established are not the legislative product of the U.S. Congress (though the U.S. is needed to support the adoption of these Articles) and thus these rules cannot be changed by the U.S. Congress as suggested by the WSJ."
My added comment: If you you want to have an understanding of how the SDR and the rules governing it actually work, the best source available is Dr. Coats.
Wednesday, March 31, 2021
In this article appearing on Project Syndicate, Kenneth Rogoff (Harvard) revisits a question that has been raised for many years. Will another currency (in this case the Chinese Renminbi) eventually dethrone the US dollar from its role as the major global reserve currency? Professor Rogoff notes that "it seems to be an article of faith among US policymakers and many economists that the world's appetite for dollar debt is virtually insatiable."
In this article, Kenneth Rogoff suggests that China may take some actions that could eventually disrupt the present US dollar based monetary system. Below are some bullet points from the article:
- the US Dollar currently continues to reign supreme in global markets
- the dollar's dominance could be more fragile than it appears
- Chinese authorities could shift to an inflation targeting regime
- They may allow the exchange rate against the US dollar to more freely fluctuate
- The US relies on the "exorbitant privilege" from the dollar to fund massive borrowing
- Chinese authorities face obstacles to making these changes, but are making gradual changes
- The US dollar eventually eclipsed the British Pound
- The Renminbi won't become the global currency overnight
- It took decades for the Dollar to replace the Pound
- First we may see three major currencies - Dollar, Euro, Renminbi
- US public and private borrowing rates would be impacted
Thursday, March 18, 2021
The Financial Times publishes this article calling for a great reset of the present monetary system. Just about every issue raised in this article has been covered here for years, so there is nothing new or surprising in the article for readers here. Below is a brief summary of bullet points from the article and then an added comment.
- On average monetary systems last 35-40 years before a new system is required
- The Bretton Woods system based on the gold standard broke down in the 1970's
- The replacement system based on an unanchored US dollar has "reached the end of its usefulness"
- The current system is plagued by a 30-year debt super cycle and "unending liquidity created by commercial and central banks"
- The massive increase in mortgage debt has driven up housing prices and contributed to income inequality
- Now is a good time to devise a new monetary system to replace the current one
- Included should be "widespread debt cancellation" and perhaps even a "debt jubilee"
- Policymakers should negotiate some form of "anchor" to the currency or currencies
- The easy money policies of the present system have created asset bubbles that are not sustainable
- Growth should become less reliant on debt creation and more on productivity and innovation
- A new monetary system with an anchor and not based on ever expanding debt can restore fairness