Stimulus or Stupidity?

Written by Geoffrey Bastin

If you ever stop and wonder how the world’s currencies are valued it’s worth recalling the events over many years that have led us to today’s conundrum.

Before WW1, when so much of the world’s trade was conducted in gold, you have to appreciate the physical means by which the gold was transported. As the First World War started, the UK had vast amounts outstanding as payments from internal trade with the US, Russia and even Germany and panic set in believing that we may not get paid as Germany would renege and Russia could not comply for geographical reasons. Because of the threat from German U-Boats to transatlantic shipping, gold payments for British goods were stored in Canada for the duration of the war.

Even the London Stock Market closed in August of 1914 and didn’t reopen until January 1915 during which time a new fiat currency to supplement the pound was launched called the Bradbury pound, as it carried the signature of the chief treasurer at the Bank of England. Similar situations had been used before during the American Civil War, when the Union States had adopted the Greenback dollar to supplement the currency so that wages and goods could be exchanged.  Greenbacks were eventually given the same value as the Monetary dollars in circulation by being able to be exchanged for gold by 1878, but the Bradbury pound was phased out by the mid-1920s.

The Gold Standard was first used to bring acceptance of paper money which in the early days was seen as having uncertain value. Once the paper money was able to be freely exchanged for gold everyone seemed happy and so they were until gold reserves starting falling and the power of world trade passed from the City of London to Wall Street by 1918. The decision attributed to Winston Churchill to revert to a gold standard in 1925 resulted in mass unemployment and eventually to the market crash of 1929 and the following depression. By maintaining the value of Sterling to gold resulted in an over-priced pound and British exports becoming overpriced and uncompetitive.

Since then we have had currencies valued by the markets which allow daily fluctuations except when John Major pursued the ERM by shadowing the Euro which also ended in tears. But now we find ourselves pursuing yet more economic madness as the five major currencies support and pursue a theory that grew from the chaos of 2008 and now seems to be gaining momentum due to the obsession for a Global Reset that will herald further misery for many. The five currencies, the US Dollar, Japanese Yen, Euro, Pound Sterling and the Chinese Yuan or Renminbi are the major contributors to the International Monetary Fund. Strangely, they all support the IMF’s ideas to end the fiat currencies of the world being matched to the US dollar and create a new way of determining value whilst spreading economic benefits more widely. Well, that’s the theory anyway.

Now, we have all been aware for some time of Quantitative Easing and the theory rather than the practice where money is created out of nothing, lent to the commercial banks to invest and, after a time, when the money has been profitable, it is returned to the banks who return it to the BoE and it disappears from whence it came. Of course, it never returns and stays as phoney money in the system and inevitably waters down the value of the currency.

But we are now talking a new language of Special Drawing Rights (SDRs) as if the QE tag was just too old fashioned. Now the proposal from the IMF that was created in 1944 and today numbers some 190 participating countries is to create £1 trillion dollars as SDRs and spread them around the world to deserving contributing countries and causes. It’s a bit like the parable of the prodigal son where some recipients will be careful and invest wisely and others will simply squander their inheritance.

But before any of that can happen those US dollars will need to be exchanged for individual currencies thereby losing some of their value but keeping the currency traders happy. The Biden administration has backed the IMF proposal to issue an unprecedented $650 billion worth of new “Special Drawing Rights” (SDRs) this year alone that will also help reshape the international financial system or so we are told. The target so far is £1 trillion dollars but is set at £650 billion at this time to keep Congress onside. That’s more than twice the total amount of SDRs created by the IMF throughout its entire history bearing in mind the IMF has no money of its own and yet seeks to generate £1 trillion dollars of largess out of thin air.

The SDR is a sort of prototype-global currency, based on a basket of leading currencies and dubbed an “international reserve asset” by the IMF. The plan is for each government to receive an amount of SDRs proportional to its stake in the international organization. This unprecedented new issuance, which has the support of both Beijing and Washington will contribute to sidelining the U.S. dollar’s role as the global reserve currency, analysts have warned. The Chinese Communist Party is expected to be a leading beneficiary at the expense of the US and no doubt the UK also.

“The United States and our G-7 partners are actively considering a global effort to multiply the impact of the proposed Special Drawing Rights (SDR) allocation to the countries most in need,” the White House said in a statement. Go on, pull the other on. On that basis alone we must assume the US has developed a suicidal tendency.

For well over a decade, leading commentators and even political leaders around the world—including Communist Chinese central bank officials and numerous European leaders—have called for making the IMF backed SDR into a truly global currency. Those calls are growing amid the push for a “Great Reset.” The “reset” plan, which would transform everything from business to governance, is being promoted by the United Nations, the World Economic Forum, the IMF, even individuals within the British monarchy and other power centres as a way to “improve the world”.

What will be the benefits? Even the Churchillian decision to revert to a gold standard was given the blessing of many so-called financial and banking experts prior to 1925 and we know how that ended. If anything receives the blessing of this Biden administration be concerned, very concerned.