So while we
engage our attention on a number of sensations and tragedies as well as the
comedy performances that pass for national politics, the world turns. One major matter that few give much, if any,
attention to is the issue of world currency exchange. This affects everyone, but everyone for all
time.
We are on
the threshold of a major shift and critical series of changes which will change
all our futures. It is basically a move
away from a world with one or two reliable reserve currencies to one without
any and in which we have to work with multiple currency exchanges.
The web
site Prudent Bear, in an article by Martin Hutchinson on 1st October
(link below) in The Bears Lair, goes into this fully. To give you a large sample tasting there are
extracts below on key sections, but there is a lot more to read that is worth
reading.
Quote:
“There is no relatively recent historical parallel we can
examine to answer that question. The world has had the dollar as undisputed
reserve currency since 1945, or really since 1939.
Between 1914 and 1939 there were two reserve currencies, the
dollar and sterling, with sterling more used in the 1930s than the 1920s,
because that decade, once Britain
went off the Gold Standard, was a period of robust health for the British
economy, while the United
States was mired in depression and
isolationism.
For more than a century before 1914, the world’s undisputed
reserve currency was sterling, although there were various regional
alternatives.
To see a world with multiple reserve currencies, you thus
need to go back to a world before sterling’s sway, which in practice means
before Britain ’s
smashing victory in the Seven Years War (1756-63) took it to both military and
economic supremacy.
In those years multiple currencies circulated, with their
use being determined largely by their local availability.
In the American colonies, for example, the greatest
circulating medium was not gold (British) guineas, whose supply was very
limited, but silver “pieces of eight” from the Spanish colonies, coins of 8
reals that had been minted to the same standards since a currency reform in
1497, these remained legal tender in the new United States alongside the dollar
until as late as 1857.
When Long John Silver’s parrot squawked “pieces of eight” it
was expressing a rational preference as to the reserve currency in which its
pirate horde should be denominated.”
Unquote.
He then
goes on to explain what may be in prospect:
Quote:
“It all sounds very jolly and free-market, reminiscent of
the buccaneering days of the early eighteenth century, except for one factor.
“Pieces of eight” and Maria Theresa thalers had a real value; they were silver
coins and in the last analysis had the value of the silver contained in them.
This will not be true of the multiple reserve currencies of
2015-16, which will be paper money, with only the value that confidence in
their issuing countries gives them.
By definition, however a world of multiple reserve
currencies is one where there is no unit of value in which complete confidence
is held. While a major unit such as the dollar can survive a moderate lack of
confidence. That may not be true of
reserve currencies that derive from relatively small economies.”
Unquote.
In small places like Canada ,
Norway
and such like, however well managed, their currency will not and cannot do the job. He concludes:
Quote:
“The eighteenth century was well aware of the problems a
collapsing paper currency could cause; it had a healthy suspicion of U.S.
“continentals” and French “assignats.” However since the Weimar crisis of 1923, we have not
experienced any such crisis in relation to a major trading currency.
In a world of multiple reserve currencies, we will
undoubtedly at some stage experience a collapse, in which a major part of the
world’s trade paper and international investments becomes worthless.
At that point, with the world economy severely damaged and
confidence in paper money destroyed, even the world’s current central bankers
may be forced, kicking and screaming, back onto a Gold Standard.”
Unquote
Here is the
link to the full item.
Whilst I
ransack my old money box for former Spanish pesetas and Italian Lire as well as
wondering how to unload my sterling assets, I am wondering whether the mattress
will hold lumps of gold.
It may not
make a lot of difference since we all may be in for a few sleepless nights.
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