Hugo Chavez, Venezuelan President, "The U.S. dollar is a worthless piece of paper."
Mahmoud Ahmadinejad, Iranian President, [The U.S. dollar is] "losing its status as the world currency."
Xu Jian, vice director, People's Bank of China, "It is the policy of the United States and it will remain the policy of the United States to remain committed to a strong dollar."
Timothy Geithner, U.S. Treasury Secretary, (July 15, 2009), [The dollar will remain the world's dominant currency for] "many years to come."
Â
Presently, there is a vacuum in international affairs coming from the decline in the moral and economic stature of the United States. It is a vacuum because no other country or organization has the credibility, legitimacy and capability to fill the gap. This is particularly true in monetary and financial affairs. By default, the U.S. dollar is de facto the main supranational key currency used to finance international trade and investment.
Many countries deplore this quasi monopoly of the dollar, the more so since the financial crisis that originated in the U. S. has spread around the world and it has profoundly damaged the reputation of the United States and severely undermined the confidence that this country inspired in the past. Add to that the illegal war of aggression that the Bush-Cheney administration launched against Iraq, a country that had not attacked the United States, and the lack of financial confidence in the USA is reinforced by a lack of political confidence.
The table is therefore set for revisiting the international monetary arrangements that were created in the aftermath of World War II. What were they?
In June 1944, during a monetary conference held in Bretton Woods, New Hampshire, an attempt was made to create a new world currency, above and beyond the national currencies of particular countries. Let's keep in mind that many decades before the British pound had been used as the main international currency. A first proposal for reform came from British economist John Maynard Keynes, who advanced the idea of creating a supranational currency, the bancor, to which other currencies would have been pegged and in which countries would have held their foreign exchange reserves. An alternative plan was proposed by U.S. Treasury economist Harry D. White, in view of establishing a "Gold Exchange Standard" whose main characteristics were to use the U.S. dollar as the main key currency, the only currency then that was fully convertible and which had an official value in gold, initially at a rate of one dollar for 1/35 ounce of gold, and later, at a rate of 1/38 ounce of gold. As we all know, this was the plan that was adopted. Nevertheless, Keynes' idea was partially adopted when the International Monetary Fund (IMF) created "Special Drawing Rights" (SDRs) in 1969, to supplement the member countries' stocks of international reserves.
On August 15 1971, however, the U.S. Government unilaterally ended its obligations to convert U.S. dollars into gold. A few years later, in the aftermath of the first oil crisis, the rates of exchange of currencies of most of the industrial world were allowed to fluctuate with the state of their balances of payments, thus reducing considerably the need to hold foreign exchange reserves, most of which were still denominated in U.S. dollars. This is the system that has prevailed until now, that is to say a flexible exchange rate system with the U.S. dollar as the main key currency.
It seems nowadays that most everybody who holds dollar-denominated assets is calling for a new international monetary system. The largest creditors, the Chinese, have initiated the debate, because they have the most to lose from the collapse of the U.S. dollar. Even the Catholic Pope has thrown in his piece of advice.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
