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Currency Wars Are Necessary If All Else Fails

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Is the Fed in reality trying to shore up consumption by juicing asset prices, and trying to ensure that the effect boosts jobs at home rather than in China, Germany, or Japan by holding down the dollar?

This is a dangerous moment for the world, and may backfire against the US itself. We are already starting to see the same sort of rush into oil and resources that played such havoc in mid-2008, and may have been a key trigger for the Great Recession. There is a risk that this commodity shock will hit before QE stimulus filters through.

And while the French deny that they are in talks with China over the creation of a new currency regime, I heard French finance minister Christine Lagarde say in person at a meeting in Italy that France would use its G20 presidency to push for an alternative to the dollar. She specifically cited the “Bancor”, the idea floated by Keynes in the 1940s for a commodity currency priced off a basket of metals. The US risks gambling away the “exorbitant privilege” it has enjoyed for two thirds of a century as currency hegemon.

Yet the surplus states have most to lose if this brinkmanship tips into commercial war. They must know this, but what we are witnessing may run deeper than a calculus of advantage. Was it naïve to think that Confucian Asia and the old democracies of the Atlantic seaboard can share an open global trading system?


Bancor is the name of the supranational currency that John Maynard Keynes was conceptualising in the years 1940-42 and which the United Kingdom proposed to introduce after the Second World War. This newly created supranational currency should then be used in international trade as a unit of account within a multilateral barter clearing system – the International Clearing Union –, which would also have to be newly found. The Bancor was to be backed by barter and its value expressed in weight of gold. However, this British proposal of introducing a supranational currency could not prevail against the interests of the United States, which then at the Bretton Woods conference established the U.S. dollars as world key currency.

Since the outbreak of the financial crisis in 2008 Keynes' proposal is winning in importance: In a speech delivered in March 2009 entitled Reform the International Monetary System, Zhou Xiaochuan, the governor of the People's Bank of China called Keynes' bancor approach "farsighted" and proposed the adoption of IMF SDRs as a global reserve currency as a response to the financial crisis of 2007–2010. He argued that a national currency was unsuitable as a global reserve currency because of the Triffin dilemma - the difficulty faced by reserve currency issuers in trying to simultaneously achieve their domestic monetary policy goals and meet other countries' demand for reserve currency.[1][2] A similar analysis can be found in the Report of the United Nation's "Experts on reforms of the international monetary and financial system" [3] as well as in the IMF's study published on April 13, 2010

Interesting that it appears there is some call to follow Keynes plan now. Was his plan with this also to stop trade imbalances getting built up as well?

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The SDR seemed a really good idea when I read about them. The USA imo isn't big enough to be the reserve currency for the world. Back in the 1950's America was an amazing 50% of the global economy. So it was more than big enough.

But today there is literally billions of people in the developing world who are becoming a part of the global economy. As they need more and more US dollars to facilitate their trade on the global economy.. it forces America to run an extremely large trade deficit. Which we see beyond a certain point causes economic imbalances in America.

As America's consumers aren't buying unlimited quantities of goods atm, its getting harder for developing nations to get US dollars to trade with. This at the same time they need more and more each year as the development is so strong in their nations.

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  • 419 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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