To the joy of conspiracy theorists everywhere, the new “United Future World Currency” coin was presented at the recent G8 summit in Italy. So far though its just a piece of alloy metal but hey value is in the eye of the holder.

As usual it was the Russian President, Dimitry Medvedev, giving the $ a good roasting and moving the debate forward to the minting process. But really how far advanced is this process and how serious are they? More to the point what would a global currency unit look like?

To answer the first question is simple: I have no idea. At the political level it is mere grandstanding usually for the domestic audience. Sometimes it’s easy to forget that most politicians have little understanding of how the global financial system works (no different from anyone else!) but back in the offices of Treasuries and Central Banks it may be a different story.Though I was struck by the recent bizarre questioning of Bernanke over the issue of $ currency swaps with central banks. It’s a classic.

I do think though that the Eurasian block are serious about making this move. Each step is a step closer to creating a multipolar currency whether its based on the Special Drawing Rights (SDRs), a Commodity Backed Currency (CBC) or an Energy Backed Currency (EBCU). Even the Amero could be a consideration.

But the key outcome will be whether we move from a Fiat based system to a hard currency system. That would make a major change in the structure to the global system perhaps taking us back to Keynes’s suggestion, the Bancor. If we stay with a Fiat system then we simply exchange one piece of paper for another.A hard backed system would certainly restore some much needed reality to the meaning and value.

What’s clear is that the US has become a fiscal disaster and holders of paper issued by the US have said enough is enough: your paper is not “as good as gold“.

It’s been nearly 9 months since the $ started to show signs of meltdown fever. Except the meltdown was the rush to buy $ as a hedge against collapsing markets and disappearing credit lines.

In the last few months we have seen markets bottom and even recover some poise, aided and abetted by the action of nearly last resort, quantitative easing. There was nothing left in the toolbox really.

So far so good in some respects. The S+P has rallied 37% off its lows…….mind you its lows were 57% down from the highs and the index still stands 42% off the highs of the last few years. Not that the numbers really matter. The main news is that markets are functioning…still.

And the $ balloon has finally burst with QE signaling a chance to sell the $ without worrying what the equity markets were doing. The Kiwi$ has rallied 32% from its March low even outpacing the hammered Pound, up 21% from its low of $1.35.

Markets can do very strange things. Even whilst the $ was rallying to extreme highs against all currencies, no one really wanted to own it. Now people really really don’t want to own it.

This is all very well but this type of volatility is impossible to manage. How can any investment manager talk about average returns of 10% a year when markets are moving at this rate. How can any business hedge currency risk when currencies are moving like this.

The bigger problem for the US is trying to stop the snowball effect that may happen if markets really decide to dump the $. The noises coming from China may be regarded as monetary brinksmanship but with Russia, looking very wolflike these days, nibbling in behind, it’s becoming a more serious issue.

There’s a lot of politics involved in this but the positioning is clear: the US is weak not just economically but militarily. The exhausting foray into Iraq has stretched the US war machine as well as seriously impacting on its reputation. Historically the ability to create coin or currency was usually backed up by military power. One of the first actions by invading nations was to replace the local currency with its own.

This makes currency both a political and economic issue. So whilst there is unlikely to be any immediate change in the $ role as global reserve currency, there is no doubt that the dance of change is underway.

The short term problem for China is its huge ownership of US bonds and other paper. So they wouldn’t be happy with a complete collapse right now but it seems like less money will be staying in $ and more will be finding a new home whilst they work out how a new global currency system might operate.

But with GM falling apart and US unemployment rising to severe levels, concerns over the health of the $ will only continue to mount.

Listening to Barack Obama tonight brought tears to the eyes.

Politics has long been missing the simplicity of both hope and intention. Sure it’s easy to sell change but I was left with the impression that he realises that the job is just starting and that everyone must pull together.

John McCain too made a speech full of integrity and dignity. What a lesson they both provided for our politicians in New Zealand who noticeably changed their demeanours in tonights final debate.

Could this be the remaking of the US? That’s hard to say but the reaction around the globe will be ecstatic, knowing we can move on from 8 ridiculous years. Watching Obama take Florida so easily just reinforces the injustice of Gore’s loss.

The Lord, however, moves in mysterious ways. Gore may not have been that great a President. Obama may have never been elected. In a way Bush laid the path for Obama. So destitute of ideas and principles the country, nay the world, was holding out for a hero.

Tonight Obama looked like a man who knows he is in for the long haul.

Let’s hope he can take the US in a new direction and build bridges to the world instead of blowing them up.

And with that in mind here’s something to mellow out with on a very special evening.

Following on from my piece on the AMRA, I’m posting a message from Stephen for all Washington D.C. locals who can attend his meeting below. Spread the word if you cannot.

Dear Friends of the American Monetary Institute

Please take a moment to concentrate on this message, and consider the very particular action it asks of you, to help our nation achieve meaningful change to assure that no “Wild West” banking system ever again despoils our people.

Place: Busboys and Poets Restaurant (Langston Room)
2021   14th St.   NW,    Washington DC  20009

 Date:  Thursday, April 10, 2008                  Time: 6:00 PM to 8:00 PM

Late arrivals OK                 Dress: Informal; all are welcome

 

Reservations not necessary but really appreciated 

Call 224-805-2200  or email  ami@taconic.net

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I read today of Tata’s impending purchase of 2 of Ford’s great brands, Jaguar and Land Rover. Only last year Tata Steel paid $12bln for Anglo-Dutch steelmaker Corus. What’s going on here? What happened to the East India Company and all that? Queen Victoria would be spinning in her grave. It seems the plunder of Asia is over. And now it’s payback.

The Arabs are at it as well having bailed out Citibank not long ago and lets not forget the Chinese pumping in $5bln to keep Morgan Stanley afloat.

Those trade and petro dollars are finally being put to good use. The Arabs in the Emirates are showing their cousins the way foward by buying real assets instead of partying away the cash as they did in the 80s. The Chinese, always astute and long-term, are making obvious in roads into the US whilst continuing to make it hard the other way around.

Reverse colonialisation anyone?

Surely this is a joke? The White House is disappointed over the recognition of the 1915 Armenian Genocide by Congress because it might effect trade issues and the war on terror.

Oh the irony.

The Turks have reacted predictably by recalling their ambassador.  And they want to be in the EU?

It makes Alice in Wonderland look sensible.