Monetary reform:Hatching the golden nest egg

hawkeye · Jan 28, 2011

Monetary reform:
Hatching the golden nest egg

http://www.usagold.com/amk/newsletter0211.html
by Randal Strauss
USAGOLD Sitemaster, Page Editor/News & Views

After a long period of relatively obscure and inaudible incubation, the process leading toward reform of the international monetary system has finally reached that mature stage in policy circles, at which it is now being discussed openly for public consumption. Variations of timelines and pathways will be further hashed out, but the well-informed minority will find themselves comfortably owning gold in the winner's circle, easily outpacing the ill-advised field of also-rans as events unfold.

Representing this emerging phase of open policy dialogue is, for example, the December 17th article, 'The Beginning of the End of Dollar Hegemony' (referenced also in the article above). In it Randall Forsyth, editor-in-chief for Barrons.com, candidly surveys the structural cracks and the stresses motivating change in the dollar-centric world order. His concluding remarks provide our springboard for additional assessment. He writes:

"How long this process goes on depends on the availability of alternatives to the dollar. ... When the tide changes, the shift is almost imperceptible. The tides of history are by nature very long term. The last great sea change came when the dollar replaced the pound-sterling as the world's main reserve currency. The dollar's role was cemented under the Bretton Woods Agreement following World War II, when other currencies' exchange rates were fixed in terms of the dollar and the dollar was convertible into gold at $35 an ounce. Since 1973, the dollar has been unanchored and has been anything but a stable store of value. ... The dollar's dominance will not be toppled in 2011 but will wane over the coming decade and beyond."

For the wealth-preservation-minded individual, the important question centers around this element: "How long this process goes on depends on the availability of alternatives to the dollar?" The answer is surprisingly simple, and the preparatory timeline could be correspondingly brief.

Gold as a store of value in national reserves

The new trade arrangements between Russia and China are instructive. Forsyth writes: "Dissatisfied with the options of the dollar or the euro, the ascendant economic powers are essentially cutting out these middlemen. ... Russia and China have agreed to settle their bilateral trade of about $50 billion in their respective currencies. That means Chinese importers don't need to obtain dollars to buy oil from Russia. Nor does Russia need greenbacks to buy Chinese goods." It should be obvious and intuitive that bilateral trade between any two given countries could be similarly invoiced in their respective currencies. The timeline is effectively zero given that these currencies already exist and are in local use. At issue, mostly, is the simple matter of breaking with mere tradition curbing the habit of invoicing/contracting in this third-party currency, the dollar. Given the suitable functionality of most national currencies for the individual invoicing and payment of their various bilateral trade arrangements, there is no need for the world to spend any time or effort conjuring up a new supra-national currency unit as a universal invoicing agent to replace the dollar.

With invoicing/payment alternatives ready and waiting, the only other aspect of usage left to address in the dollar's international role is that as a reserve currency that is, as a store of value. Here most of the conditions are begging for change and offer the largest scope for improvement of the international monetary order.

Store of value (reserve usage) is a significant element because, at the end of any given trade cycle (i.e., monthly, or annually, for example), a nation actively trading with its international peers as described above will inevitably end up with a net position in various foreign currencies. It becomes a matter of national importance to consolidate those paper positions into a more reliable form that is not dependent upon the fiscal policies and monetary management skills of your international trading partners. It is the form of asset chosen for this consolidation of the net position that embodies the "store-of-value" function from one trade cycle to the next and beyond.

Forsyth points directly to the primary problem with the dollar: "Since 1973, the dollar has been unanchored and has been anything but a stable store of value." Gold, on the other hand, serves this role uniquely well because it resists the degrees of artificial inflation and depreciation commonly afflicting national currencies as each are managed (no surprises here) according to their own self-interested national economic objectives.

The central banks of the world, throughout their long history, have more or less developed the requisite infrastructure and ample experience in the fine art and science of gold storage and allocation transfer. Therefore, not only can gold provide a more stable and suitable (non-national) alternative to the dollar for the store-of-value role, in that capacity it is readily available with no significant lead-in timeline for basic implementation. To be sure, many central banks have already in place the mark-to-market accounting structure to accommodate (and benefit from) the significant upward revaluation of gold as would be expected to occur through further progress along the dollar-to-gold reserve transition.

Establish gold position now; then go on with your life

As for timing, various policy signs over the past several years had indeed pointed toward 2010 as the watershed point in the international monetary transition, but the depth of the current commercial banking crisis likely argued strongly for a delay under the consensus thought that calmer waters would facilitate a better transition. As such, the requisite transitional infrastructure and policy is largely in place at the present time, so a timeline for this store of value transition can be every bit as short as that for invoicing essentially, no great deal of time is needed for flipping the switch to make best management practices (choice of invoicing currencies and reserves) consistent with best accounting standards.

In light of the current crisis and some of the policy efforts underway to restore calm to the commercial markets, it looks to me that the new timeline for significant transitions is mid-2013, which is consistent with the current policy talks driving the permanent European Stability Mechanism to that timeframe. But with that said, it could just as easily be set into motion at any given moment between now and then, and fully fledged between your breakfast one day and your breakfast the next. Hence, since it appears that gold has become politically correct (as suggested in the article above), it is best that you work to actively establish your desired gold position without undue delay. With peace of mind you can then turn your full attention to the business of living your life as it was meant to be. In this time of transition, spending significantly further time and energy running along the treadmill of alternative currencies and their derivatives in a gamely attempt to keep up or get ahead is a fool's errand.
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Oh no, it's the NWO! lol

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Monetary reform:Hatching the golden nest egg

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