Sunday, June 15, 2014

What Have We learned here about about the pace of Monetary System Change?

This blog is devoted to following events that could lead to major monetary system change. There are many theories as to when major change might happen. Some believe a "global currency reset" of currencies would happen as early as this year. Other evidence suggests the process could take years. What can we learn from the information we have posted here about this question?

We have attempted of follow and archive a wide variety of information here to help readers get a feel for this important question. Since major monetary system change will probably include a major change in the status of the US dollar, it is an important topic even though most people will not realize how it might impact them. 

Let's try to apply what we have learned from articles posted here to see if we can get an idea about when major change might happen. Here are some observations we can make:

1- Major change tends to take place over time in a series of smaller steps, not suddenly on a global scale. Common sense tells you this is true. Sudden major change on a global scale can only happen by the actions of global financial institutions. There is no other global organization to make them happen. The IMF is realistically the only place major change could happen globally until the BRIC bank is up and running (not scheduled to get going until next year). So what is the status of things at the IMF from what we know right now?

-the IMF was unable to get the 2010 reforms approved and have essentially given up on that at least until early next year. 

-the BRIC nations are moving forward on their own to setup their Bank, but that will not even really get started until 2015. They are in no position to implement major change yet, but are taking steps to be able to influence major change. 

-right now the political winds are against the IMF. The recent vote in Europe was a signal against centralization. In the US, the election in November is expected to see Republicans retain the House and gain in the Senate (or even take the Senate). And there will be a few more Tea Party type members (see the recent Eric Cantor loss) who will not go along with approving the IMF reforms. This could see the reforms killed until at least 2016.

All this has led to nations around the world deciding that the current Western led global institutions are not working. They are moving further away from the IMF and the UN  which they see as promoting US and western interests. We have the G-7, G-8, G-20 and G-77 all with conflicting interests.Recently at the Bretton Woods annual meeting Mohamed El-Erian made this statement which illustrates the mood right now:

" “We have come from a world of ‘Gs’ (e.g. G-7, G-8, G-20) to a world of G-0,” he said. He commented on the incredulity among other countries caused by America’s failure to pass the IMF quota reform legislation, but concluded that the United States should not be the only country to be blamed for the current IMF status quo because European countries are also not willing to give up their current position."

To sum up, nothing going on right now points towards any sudden major change coming out of the IMF (which we know is the only place it could come from right now). We agree that some kind of sudden global crisis could change things. But even then all these obstacles to cooperation would have to be overcome. This is hard enough to do even in just the small regional area we noted in Africa (the SADC). This 2011 study by the University of Pretoria noted all the difficulties just this one 15 nation region was having trying to reach their goals for monetary union.  Even this 2012 IMF working paper concluded that there might not be much benefit to the SADC to form a central bank or currency and this article notes that getting all the nations just in that one region to work together is a difficult challenge. So imagine what it would take to get all 200+ nations at the IMF to do so some day.

2- Change in steps at the Regional level is the trend for now. This is where our articles this weekend on Klickex and Africa fit in to this discussion. This African project is clearly a trial to allow new systems to be tested in the real world. Think about all that has to happen to implement any new system (much less a new reserve currency). There has to be the banking system infrastructure to support it. That takes complex integration of banking systems and software. It is going to have to be safe for users and meet the regulations of all the countries involved and global regulations like Basel 3. It has to be tested to make sure it works in the real world (if you pay attention, this what Klickex says they have done in the South Pacific and now in Africa). And you have to have all the legislative bodies in all the countries willing to cooperate to have a common currency and/or central bank. Businesses and voters have to be willing to go along with such changes or they will vote against their elected officials. So it takes a lot of time and political will and effort just to put together a regional union and currency. Multiply that many times for a global one. It is easier to talk about than to do.

So are we saying it is impossible for major change to happen globally?

No, it is possible but a lot factors would have to all come together for it to happen. The IMF cannot just simply declare themselves to be a global central bank or institute a new SDR global reserve currency one day (and usurp all the existing central banks in the process). The SDR that the IMF uses is an "internal" currency meaning the individual citizen cannot use it, only central banks and nations. That is a logistical issue that would have to be dealt with.

All kinds of groundwork and infrastructure would have to exist. You would have to have all these nations trusting each other and the IMF to be fair and impartial. Do we see that attitude in place right now? Obviously not. Just the opposite right now.

What we are saying is that the most likely path to major change (outside of a major crisis that causes the world as a whole to accept this kind of change quickly) is the current path of regional testing and implementation. One thing we know is there has to be a banking system operating that could meet all regulations, allow for a common currency, and that all the players in the system were trained to operate. (Just what we see Klickex steadily working on)

So we ask that you try to keep all this in mind the next time you see a sensational headline somewhere on the internet something like:  "World of the verge a Global Currency Reset"

There are credible reasons to believe that kind of major change is coming. In fact it is the premise of this blog. Credible sources like Jim Rickards, Jim Sinclair others are predicting it.They make solid factual arguments to support their views. 

But the reality of what we know right now suggests the process will be over time after regional trials to get a workable system in place. Obviously, in a crisis things can be sped up and people who were in factions might decide to work together if the crisis were bad enough. But absent such a crisis, the change will likely be more gradual based on regional experiments to see what really works. 

Hopefully, this article can give you a better way to evaluate the timing of potential major change. The idea that something this massive could happen overnight is heard around the internet: but without explanation as to how it could happen that fast without an existing operating system in place to run it. We just urge people to use common sense to evaluate what you read.

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