Alex’s Notes: Ultimately, history repeats. History tells us that fiat currency cycles end in failure of the currency. Failure of the currency generally means that the newly accepted form of currency has to be relinked to a stable measure of value. History also shows us that the stable measure of value most commonly used when currencies fail is gold (why do you think Central banks hold so much of it?).
I am not saying we should go to a pure gold standard (ie I trade you a piece of gold for a haircut).
What I am saying is that for currency to have value as a medium of exchange, it has to have the confidence of the people using it. If the medium of exchange does not have the confidence of the people, then the currency crashes (kind of like what we are seeing today).
To use SDR’s as the “super-sovereign reserve currency” (is that like, super with a cape and tights?), is just a bandaid on a gushing severed limb. Its not going to fix the problem, because the IMF doesnt really have anything backing it up, it simply calls gold on its books assets, when in reality its the property of the participating nation. If push comes to shove, you think any country is going to give up its gold reserves?
Wed Mar 18, 2009 11:16am EDT
By Jeremy Gaunt, European Investment Correspondent
LUXEMBOURG (Reuters) - A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.
Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.
Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.
“It is a good moment to move to a shared reserve currency,” he said.
Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value — though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.
(more…)
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