Affichage des articles dont le libellé est international monetary system. Afficher tous les articles
Affichage des articles dont le libellé est international monetary system. Afficher tous les articles

2014/01/06

Who could protect JPMorgan bankers and owners?

The endgame is unfolding, as all the persons interested in the gold market now know.
The return of gold as the central asset in the coming new international monetary system is certain.
We have already proposed a method in order to anticipate the next big move.

The current powers are massively accumulating gold, benefiting or causing gold price suppression. We can observe very different strategies among them:
  • BRICS countries, and China in particular, are adding gold into their official monetary reserves but also are officially and strongly encouraging their people to buy and own gold (and see here: even if a simple gold-backed yuan is not the solution to successfully reform the international monetary system, this report is a point in favor of the strongest interest in gold from BRICS governments)
  • The U.S. and U.K. countries (central banks, bullion banks) are publicly discouraging the people to own or buy gold and Bernanke couldn't even remember the reason why the Fed managed gold reserves; but since 2008 and much more since last year JPMorgan has built a strong position in the gold market (as a bullion bank), and is accumulating it at high volume
  • Euroland countries are in a middle position: not publicly advocating gold, not discouraging it; but ECB and european central banks are buying it again, and/or stopped gold leasing (and see here)
You might ask what will happen after the next big move: the new monetary power will be shared between the main gold owners, according to their stocks or geopolitical alliance, and BIS status will be redefined; yes, but then?

I'm wondering what could happen then in the U.S., a state where this next big move will inevitably signal a new era to the society currently in such a difficult and politically dangerous position. Wall Street's Banks' gold will attract the american people's attention, desire and violence.

The best solution for the US people would be to open the Mint and to rebuild a new gold system based on the New Austrian School of Economics' detailed recommendations. But don't hold your breath: this would mean for the US bankers to share power with the people, and they are not individuals of this kind. They will not give this gift unless a new state is proclaimed because they are scared of losing their favoured position. Remember: gold means liberty.

The remaining solution would then be to augment the fascist trends, i.e. to make even closer JPMorgan (and the TBTF banks) and the police state, in deploying a permanent and official protection by the state for these bankers and/or by allowing them to create their own militia.

But we could also think further: JPMorgan could officially merge with the state, to emerge from the deep state and to become a visible part of the new state. Mainly, it could replace or merge with the US Treasury, whose (remaining) gold is currently managed by the Fed. 
The protection of the previous private bankers, then civil servants of the state, and of the newly joint gold reserve would be obviously required, but more easily claimed as a 'usual' protection by the state against the ruled ones.

2013/12/16

Artwork: The One Bond


 Three Strings for the Eastern-kings under the tie,
 Seven for the Oil-lords in their halls of stone,
 Nine for Mortal Banks doomed to die,
 One for the Doll's Mark in the dark thrown
 In the Land of Morgan where the Shallows lie.
 One Bond to rule them all, One Bond to find them,
 One String to bring them all and in the darkness bind them
 In the Land of Morgan where the Shallows lie.

  — inspired by J.R.R Tolkien, The Lord of the Rings, Epigraph


Artwork licensed under Creative Commons BY-SA 3.0  


2013/11/02

Towards a resilient international monetary system (part 1)

[This is the English translation of the original article published in French.
Part 2 of this serie is available here: The golden age of our times is the age of gold]

Foreword:

The crisis of legitimacy faced by the institutions of the global governance system set up after 1945 is resulting in the collapse of the old framework of international cooperation, with apparently nothing ready to replace it, besides a myriad of more or less successful regional integration projects. The supra-national regional entities that are currently being forged, created in a context of increasing emergency, are indeed the building blocks of tomorrow’s multipolar world. These integration processes are certainly a necessary step, but without a new "global" governance framework, capable of harmoniously combining these new components, conflicts of interest will soon oppose them and will quickly lead the world into the logic that prevailed in Europe in the late nineteenth century and the first half of the twentieth century.

Today everyone can see these tensions mounting between blocks on the themes of access to commodities, trade, currencies,.. putting high pressure on the fragile world peace and endangering the impressive development of emerging powers and the long period of prosperity of Western powers.

The next G20 to be held in Saint Petersburg in September is the next opportunity that the world gives itself to find solutions to the growing difficulties facing its equilibrium. But time is running out...

The Euro-BRICS strategic alliance :

For three years now and based on three seminars already, LEAP and MGIMO have been advocating a Euro-BRICS strategic alliance wishes to enable:
  • Europe to turn more resolutely towards the future dynamics that the BRICS bring
  • the BRICS to find the allies they need to achieve a more balanced global governance system.
In this double simultaneous development, the whole world has everything to gain.

The last seminar of the Euro-BRICS research network was held in Moscow on 23 and 24 May 2013 and addressed several major issues that the dynamics of Euro-BRICS relations could bring solutions upon, which include monetary and trade issues.

My presentation was titled "Towards a resilient international monetary system to systemic crises". I presented a strategic overview of the first part of my thoughts on the evolution of the international monetary system, which concerns the short-term. When reading its content (full text below) it may yet seem too much avant-garde or even wacky. This is not the case as demonstrated by recent announcements: first the announcement last July of the use of Qianhai special region for the purpose of innovation in financial flows. And second: in June 2013, the Asian Development Bank, the Centre for International Governance Innovation and the Hong Kong Institute for Monetary Research published a study entitled "A Practical Approach To International Monetary System Reform: Building Infrastructure For Settlement Regional Currencies" (originally presented in a conference December 2012 in Hong-Kong) and exactly aligned with the strategy that I have described.

Bruno Paul, 08/27/2013.



Towards a resilient international monetary system to systemic crises

Back in April 2010, the World Bank member countries agreed to change its severely criticized governance. This text has never been ratified by the U.S. Congress. 

On 03/26/2013 the BRICS countries announced the opening in 2014 of their own development bank, a fund with more than 100 billion USD, which will be able to substitute to the World Bank when appropriate. 

In response to the question I asked last 04/19/2013 at the conference #futureecon organized by the IMF, about the possibility of creating a second IMF by the BRICS countries, the IMF Deputy General Manager M. Min Zhu worried about this eventuality, and the question is no longer taboo. We need to remember that the world has witnessed the use of two simultaneously dominant reserve currencies during the interwar period. The U.S. dollar and British pound were used in almost equal parts, each with their own geographic area of influence.[5] To continue only to forecast a single international monetary system and a single reserve currency is therefore probably a reflex or an intellectual habit. 

IMF has announced a commitment to a review of quotas by January 2014, a proposition championed by BRIC countries since 2008. [1] 

From the conclusions of their last April and May meetings, G20-Finance, the World Bank, the IMF and the IFMC helped to highlight the strong convergence of international debate and a consensus on three key principles: structural reforms that will manage debt on a sustainable path, deficit reduction over the medium term and reduction of global macroeconomic imbalances. It is explicitly stated the need to restore the resilience of the international economic system. 

The IFMC press release specifically indicates a commitment to refrain from competitive devaluations.[6] 

We can then define two groups of countries: those who actually enroll in this consensus, and those for whom it is only words since the beginning of the crisis. Factual analysis of the evolution of macroeconomic indicators since 2008 allows us to isolate in one group: the U.S., Japan, and the United Kingdom, and in another group: all others G20 countries. For instance, efforts towards a fiscal convergence within the eurozone are particularly remarkable. The integrated economic government of Euroland, with a president appointed at its head who would be responsible for a tax harmonization among the member countries and to extend the plan against tax evasion is growing each day a little bit more, these days by the official voice of François Hollande who so wishes to occur before 2015. 

On the other group, without having to officially using the terms of "competitive devaluation" the weapon of extraordinary monetary policies has already allowed the yen to lose continuously 25% of its value against the dollar, the euro, and the yuan since October 2012. Analysts announce the continuation of this trend throughout 2013.


Therefore what struck us is the failure of the IMF strategic mission of financial supervision, whose official statements endorse the practices of countries that do not play the multilateral game.

This has already pushed the BRICS countries to develop a common strategy for the reform of the international monetary system. [4] To my mind it is shared by the political leaders in the Euroland and fully in the logic of closer Euro-BRICS relations. Let’s list the the big milestones of this multilateral strategy for the reform:
  • Reform and entry into force of new quotas and voting rights in the IMF, with an improving weight for countries like the BRICS;
  • Reform of the basket of currencies defining the SDR currency (with gold gram);
  • Development of a very deep and liquid market for international trade based on the new SDR
  • Slow rebalancing of global macroeconomic imbalances in the medium term, is to say 20 years minimum

 The unprecedented political movement created by the creation of a new BRICS development bank, far from appearing as a simple duplication, can be also useful to stimulate diplomatically the progress of this multilateral strategy.

The key question then becomes, in my opinion: is the necessary delay to ensure the success of this strategy allowed? As stated in the introduction of our seminar: "time is running out." We recently published in the Magazine of Political Anticipation an analysis of U.S. foreign and domestic policies going back over a century, and we showed that the policy of military Keynesianism at work in this country led to a strong erosion of democracy, today already at a level where we can anticipate that a significant portion of U.S. citizens in a few years will be forced to follow the path of an open struggle against their federal government. To the international pressure will follow for the U.S. government a rapidly growing domestic pressure.[7]

Moreover, the unveiling role of the world systemic crisis has occurred:
- First, in the recent and anticipated dramatic shifts in the gold market which revealed the price manipulation through short sales contracts on the COMEX in New York, followed by withdrawal of almost all of the eligible physical gold stocks stored by JPMorgan Chase , one of six bullion banks sharing the gold storage and physical delivery for COMEX futures market. 

Source: ZeroHedge

In two days, 400 t of gold disappeared from the bullion banks [3]. At the same time appears the loss of correlation between the official quotation of gold (that is to say, gold paper quotation) and the physical gold which is now accessible only through the addition of a premium which greatly increased , and is highly dependent on local supply. And finally we need to point out the historical record for physical gold imports by Asian countries in the first quarter, including 300 t for China. 

Source : ZeroHedge

- Second, the disclosure is evident in the growing number of leaked lists of thousands of owners of bank accounts in tax havens since 2007 (beginning with the Lichtenstein then Switzerland [2]), in the investigations that the States including those of the Anglo-Saxon pole are forced to conduct, and finally in the growing regulation of automatic data exchanges from tax havens banks to the fiscal administration in the state of residence.

These unveilings are major factors accelerating the global systemic crisis, in its current phase.
It seems to me therefore essential not to abandon the multilateral strategy to reform the international monetary system, but to quickly add to it another initiative from the Euro-BRICS group. This second initiative draws on the logic currently at work of global geopolitical dislocation, and I call it “Multipolar Strategic Initiative for Resilience”. Its purpose is to minimize the effects of currency war, and to complement the use of the many new bilateral swaps.

Our proposition is to develop or create Special Administrative Regions for each country of the Euro-BRICS group. These regions would be dedicated to flows of goods traded by each country of the Euro-BRICS with the United States and Japan, like the existing status for Hong Kong or Macau. The inclusion of the UK in this list of special trade partners could be studied as well, but the process is made much longer and uncertain for the euro zone because of the current European treaties. Possible future voluntary exit from the European Union by the UK would call for study its inclusion in this list.

Euro-BRICS countries would not make any more invoicing or payments for goods selling directly with the United States and Japan. Note that we consider for the moment only flows of physical goods, that is to say, the greater part of the real economy. Import/export flows and re-invoicing would be operated only using transhipment through the Special Administrative Regions (SAR). The idea would be to use in these regions a different currency than the one commonly used in Euro-BRICS countries, in the same way that the Hong-Kong dollar is not the same currency than the yuan or renminbi.  Current currencies would remain convertible on the market. These Special Administrative Regions would concentrate the risk of trading with countries with great variations in currency exchange rates. Euro-BRICS countries would be able to regulate at will the rate of exchange between their own currency and the one in force in their own SAR. These SAR would be developed or created around major ports currently used for trade with the USA and Japan. Registering not strictly necessary financial activities (private funds ...) in these SAR will be discouraged.

Trade between the Euro-BRICS countries should not be affected by the development of the RAS, and if possible do not pass through them. These areas should be used only to build a “firewall” (like when protecting IT networks) for trade with countries whose observed policies have proven their unwillingness to respect the required governance for an effective multilateral trade dialogue.

However, it is desirable that the Euro-BRICS countries strengthen their abandonment of the dollar as their international invoicing currency for trade between them, including for oil products. The existing agreements should be amended accordingly.

The Multipolar Strategic Initiative for Resilience is very flexible. Each country can progress at its own pace in this direction, respecting the new cooperative logic of global governance summarized by the expression of Evgenia Obitchkina: “the multipolarity alongside the diversity." [8]

The main advantage of such a "string of pearls" of RAS that would interface with the United States and Japan, in addition to reducing the currency risk thanks to the strict control of the exchange rate with the SAR and to the billing terms that can be optimized, lies in the resilience of the international trade system in case of default of major financial institutions in the United States or Japan. For Euro-BRICS countries, financial defeasance structures (Special Purpose Vehicles…) would be registered in the RAS and systemic risk would be more contained without jeopardizing businesses and public debts of the Euro-BRICS countries.

Finally this initiative can be simply summarized: it is to organize and regulate the interface between the dollar-yen area and the rest of the world. The trade and economic size of the Euro-BRICS countries is sufficient to initiate the successful containment of the systemic risk.

In a second step, one could think about control of capital flows between the Euro-BRICS countries and U.S. / Japan, but it seems to me less of a priority and can be developed independently. The Asian crisis of 97 and the euro crisis have already raised awareness of required significant exchange reserves or alternative mechanism to dampen currency crises or sudden withdrawal of capital by U.S. companies.

The world of tomorrow, but also visible prospects out of the current global crisis depends to a large extent on the qualities of the new international monetary system and first its stability. The Multipolar Strategic Initiative for Resilience is a new step towards a dual international monetary system resilient to global systemic crises. As Deng Xiaoping stated: "One World, a dual system" is the horizon to which we should move forward. And as said Richard Fuller, “to change something we need to build a new model that makes the existing model obsolete”. The mere mention of this possibility is already a carried weight argument to improve the effectiveness of the multilateral strategy. This new initiative is a potential source of true political influence for the Euro-BRICS and for a growing synergy by network effect.

Bruno Paul, 05/23/2013, Moscow.




[2] Shortly after the agreement with the French fiscal administration is an agreement reached between UBS Switzerland and the USA

[3] K. Weiner has since proposed a different explanation for this fact. It is seldom known and deserves to be mentioned. 

[4] M. Otero-Iglesias, M. Zhang, EU-China Collaboration in the Reform of the International Monetary System, RCIF Working Paper No. 2012W07, 04/2012; Mr. Otero-Iglesias, China, the Euro and the Reform of the International Monetary System , 10/2012 

[5] C. R. Schenk, The Retirement of Sterling as a Reserve Currency after 1945: Lessons for the US Dollar ?, Canadian Network for Economic History conference, 10/2009 ; B. Eichengreen, M. Flandreau, The rise and fall of the dollar, or when did the dollar replace sterling as the leading international currency?, NBER Working Paper 14154, 2008. 


[7] B. Paul, The inevitable counter-revolution of the American people, Magazine of Political Anticipation, n.8, 03/2013; See also the long version of this article in French. 

[8] E. Obitchkina, « From the diplomacy of states to that of networks: powers and areas of interest », 3rd Euro-BRICS seminar, Cannes, 09/2012. 

2013/09/15

The monetary war in seventy-one seconds

James Rickards has given few days ago a very interesting interview to Mineweb Radio in South Africa.

I consider this as the best summarized description of monetary war (so called 'currency war'), albeit a very short one.
I only disagree with a point : Rickards described 3 phases in the monetary war : 1921-1936 ; 1967-1987 ; 2010-now.
In fact, the current crisis is rampant since 1967. One major event has temporarily covered up the monetary crisis: the strategic partnership between US and China, which has sustained the international role of the US dollar, but without reforming any fundamental weaknesses. The CBGA first gold agreement in 1999 was a significant sign that the monetary crisis, like a dormant virus, was still there.
The US/China monetary partnership has been broken since 2009/10, and this has unveiled a new wave of the monetary crisis.
Here are a few pictures from my Research Pages to illustrate the major trends:

Data serie since 1985

U.S. : Velocity of M2 money stock (lhs; using GDP/M2); 
Velocity using M2 / StLouis Fed non-adjusted monetary base (rhs); 
Data series since 1959


2013/01/17

Gold, the renminbi and the multiple-currency reserve system

 The Official Monetary and Financial Institutions Forum and the World Gold Council have just released a new report called "Gold, the renminbi and the multiple-currency reserve system".

The foreword is by itself a very good synthesis of the current situation :
" The world is preparing for possible twin shocks from the parlous position of the two main reserve currencies, the dollar and the euro. As China weighs up its options for joining in the reserve asset game, gold – the official asset that plays no formal part in the monetary system, yet has never really gone away – is poised, once again, to play a pivotal role. [...] No other reserve asset seems safe from the coming dollar shock. "
If this new international monetary system preparation and the dollar replacement as the major reserve and international currency still looks incredible for you, here are others synthetic views of the current situation :

ECRI U.S. Weekly Leading Index ;
data serie from 1967 to 1/4/2013; click to zoom

Share of AAA-rates assets as part of the total fixed income markets

...this is the rush towards new safe assets (for instance below Australian AAA sovereign bonds) :


...and out from the U.S. Treasury and Agency securities :



...and add to this the reports about gold massively bought and recycled out from LBMA system or newly claimed by Asian countries.

Now back to the OMFIF report : Chapter 4 summarizes different prospective scenarii for the 2013-2018 timeframe. As usual with prospective-only scenario, they simply ignore the politics, and let the readers do their own choice. More, they do not argument at all why they have chosen these scenario and not others ones, and do not even mention Japan.

I have then to give my own view, based on previous political anticipation about the strenghtening of the eurozone, more political integration into Euroland+ (i.e. EU less UK plus Scotland), more weakness of the Fed blunt monetary policy, increasing defiance towards Fed monetary policy from others interests, and a new monetary policy from Japan following the recent election (cf Yahoo News). 

Currency zone
Macroeconomic developments
Currency effect
Impact on gold
U.S.
US economy in recession due to fiscal tightening and ineffective policies. Public finances remain weak, as does domestic demand.
Dollar drops as fast as the new reverse system is taking momentum.
Gold market manipulation and Euro strength are initially gold negative, but US weakness then cannot avoid to boost gold.
Eurozone / Euroland+
Euro area works through its problems and survives intact, thanks to the new integrated policies and macroeconomics tools.
Euro strengthens as Europe appears to have overcome the crisis.
Euro strength is gold negative, but US weakness then cannot avoid to boost gold.
China and South Asia
China tries to stimulate domestic demand.
Renminbi decouples from dollar as further de-pegging is seen as attractive.
Chinese buying continues. Emerging market central banks continue opportunistically to build up gold stocks.
Japan
Japan tries to stimulate domestic economy using a new monetary policy.
BoJ decouples from Fed policy as further pegging of Yen with Renminbi is seen as attractive.
BoJ have to buy some gold stocks to back their own currency, and/or sell their U.S. Treasury for others bonds.

I will discuss UK geoeconomics in a future article, if this priority increases.


2012/10/19

The international role of the euro remains unchanged after the last crisis : ECB review

This 11th annual review of "The international role of the euro" presents the main findings of the continued monitoring and analysis conducted by the ECB and the Eurosystem looking at the development, determinants and implications of the use of the euro by non-euro area residents. This review also examines in greater depth issues that have a bearing on the euro’s international role, the global currency order and the international monetary system (Part #1). This analysis is also  presented in the form of four special features (articles #2 to #5).

Contents:

1. Recent developments in the international use of the euro.
2. Foreigners’ appetite for euro area securities during the sovereign debt crisis.
3. The Chinese dominance hypothesis and the potential emergence of a tripolar global currency system.
4. When did the US dollar overtake the Pound Sterling as the leading international currency? The “old view” versus the “new view”.
5. Was unofficial dollarization / euroisation an amplifier of the global crisis of 2007-09 in emerging economies?
6. Statistical annex.

PDF Version :  1.64 MB (en)
ePUB Version:  10.3 MB (en)

The 4th article, based on work by Chitu, Eichengreen and Mehl, and the 3rd one, based on work by Fratzscher and Mehl, bring new details on a topic familiar to the readers of Conscience Sociale ( How to replace the world trade reference currency ? ) ;  Part 1.3 proposes updated elements to the topic covered on this page : US Dollar (and Euro) as invoicing currency.
The whole review certainly deserves your strong attention.

2012/09/08

The growing role of gold in the evolving international financial architecture


Let's start with a relevant extract from the last WGC report :
"The second quarter was another period of significant purchasing by official sector institutions, with demand amounting to 157.5 tonnes.This was a record quarter for central bank buying since the sector began recording net purchases in Q2 2009 and was more than double the 66.2 tonnes of purchases made in the same period of 2011. 
Purchases in the first half of the year totalled 254.2 tonnes, 25% up on 203.2 tonnes from the same period last year. The official sector accounted for 16% of overall Q2 gold demand.
Some central banks have clearly indicated their intention to bolster gold reserves. One such institution is the National Bank of Kazakhstan, which stated in July that it had increased its 2012 target for gold purchases from 24.5 tonnes to 26 tonnes. 
The bank has previously stated that it plans to buy the country’s entire domestic production over the next two to three years in order to reduce its reliance on the US dollar as a reserve assetconfirming that it is targeting an allocation to gold of 15% of its foreign exchange reserves.
Following the confirmation in June that it had purchased over 32 tonnes of gold in March, the central bank of the Philippines made no net changes to its reserves throughout the second quarter. The bank’s stated policy of buying local mine production remains in place and reserves as at the end of June stood at a provisional 194.2 tonnes, equal to around 13% of total reserves. 
Russia’s programme of buying saw the central bank add a further 22.3 tonnes to its reserves during the April to June period. Total gold reserves at the end of the period stood at around 920 tonnes, roughly equal to 9% of total reserves. 
The National Bank of Ukraine appears to have accelerated a programme of very small sporadic purchases, which it has made over recent years, with four consecutive monthly additions to its gold reserves since March of this year. These transactions have been small in size, with purchases in the second quarter totalling 3.6 tonnes, but relative to total holdings of 32.8 tonnes this represents a significant percentage increase in the bank’s gold reserves.
Small purchases were also made by a range of central banks across Europe and South America, including Serbia (+0.2 tonnes), Guatemala (+0.2 tonnes) and the Kyrgyz Republic (+0.2 tonnes).
Turkey continued to record increases in its gold reserves; however, these additions are excluded from our data. As reported in the previous issue of Gold Demand Trends, recent legislation allows commercial banks to pledge gold as part of their reserve requirements to the central bank. The reported changes in Turkey’s gold reserves reflect changes in gold pledged by commercial banks, rather than acquisitions by the central bank in the open market. While not representing a traditional addition to official sector reserves, the increase in reserves reflects the growing role of gold in the evolving international financial architecture.
Following a similar pattern to its actions last year, South Korea’s central bank announced in August that it had purchased 16 tonnes of gold in July, having “judged ...market conditions were good” to make a purchase as part of its stated ongoing diversification of reserves. Coming as it did after the end of the quarter, the purchase is not captured within the second quarter data but is confirmation of a continued trend of purchasing by the sector. The bank has increased its gold holdings by 56 tonnes since June last year, with the aim of diversifying its portfolio. The latest purchase takes South Korea’s gold reserves to 70.4 tonnes, accounting for around 1% of total reserves. 
Sales among central banks remained muted in the second quarter. Under the terms of the third Central Bank Gold Agreement, sales [...] amount to just 13.9 tonnes."
The gold buying policy of Russia Central Bank is not new. But in just 4 years of global systemic crisis, ALL central banks have switched the diversification policy of their reserves, as depicted below :



Except Switzerland, the bar and coins demand market has increased in Europe since last quarter. It is now the biggest market in the world, above China or India. 

Source : WGC Gold Demand Trend Q2 2012 report