The current currency structure in the US is on the brink of collapse. They can prop up the dollar for a few more months because they’ve, in Bernakee’s words, “Engineered it so it works like gold”. He’s quite right – they’ve convinced the world that it’s US treasury bonds are the most stable thing you can buy – so people buy them rather than gold when they get out of risky investments. If the dollar wasn’t as good as gold, people would buy the gold, but everyone now believes that the US currency is more stable than gold (and not neccesarily for bad reasons), and their belief communally becomes a self-fullfilling prophecy.
However, I’ve recently learned that in the upcoming world meetings, called “efforts to reform the financial system”, Europe is going to push a new world currency system.
This is significant because the end of Bretton Woods two was the end of the gold standard. Nixon went off the standard because he didn’t have the gold to pay back for dollars which had been bought by France mostly. The notion that speculators caused the failure of Bretton Woods two covers over the fact that the crises were actually caused by DeGaul’s insistence on monetizing (turning into gold) American dollars recieved in exchange for Exports, at 35$ an ounce – when it became clear that there were not enough ounces in reserve to “pay” for all the dollars which had been printed and shipped overseas, Nixon suspended all monetizing off the dollar.
A Bretton Woods three would by a world currency standard based on fiat. This is extremely significant – because fiat money requires someone to say “This is currency because I say it is”. In other words, it requires executive power (in Canada, it is literally the Queen who says “This is legal for all debts” on the currency).
World treaties do not tend to be based on a single executive voice from which law is spoken – they are basically anarchic, based on tedious adherance to conditions on penalty of sanction or loss of prestige. But in any case – every international treaty is only as binding as the results of breaking it are unpleasant. I’m not sure if the Nuremburg laws are an international treaty, but if they are, the fact that they have been broken so many times over since 1945 would be a good proof in the notion that international treaties are only as strong as the penalty which results (or rather, is anticipated).
What would a world fiat money be? What would prevent countries from overprinting their currency, knowing that it would steal value not only from their own, but others aswell. This is a simple instance of a common pool resource failure.
To prevent this, it seems countries could have little control over their own macro-economic policies. Even the ability of the national bank to set the overnight lending rate would need to be controlled internationally, because this requires effectively altering the money supply.
International currencies based on a commodity standard are inherently stable, because countries (like say, the post war U.S.A.) which overprint notes with respect to their reserves will (should) have their currencies fail. Or, if we think what happened was the rule and not the exception, an international currency could only be gold – where the actual physical use of gold is just as common as the use of paper currency, and it can be exchanged one for the other on a daily basis – this is the only way to prevent countries from taking advantage of each other by increasing the money supply (which benefits them, but hurts other countries which have their currencies tied to the first country).
Does anyone else have an opinion on this?