IMF chief pushes for more power, new global currency

Source
Stephen C. Webster
The International Monetary Fund wants more power to police the global financial system and a bigger role in emergency financing, managing director Dominique Strauss-Kahn said Friday.

In a speech to the Bretton Woods Committee, a finance reform think tank in Washington, D.C., he claimed that a stronger IMF also warrants a new global reserve currency that would serve as an alternative to the U.S. dollar.

"Strauss-Kahn said such an asset could be similar to but distinctly different from the IMF's special drawing rights, or SDRs, the accounting unit that countries use to hold funds within the IMF," ABC News reported. "It is based on a basket of major currencies."

"One day, the Fund might even be called upon to provide a globally issued reserve asset, similar to -- but in important respects different from -- the SDR," he said.

Strauss-Kahn added that "having several suppliers of reserve assets would limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country."
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"The challenge ahead is to find ways to limit the tension arising from the high demand for precautionary reserves on the one hand and the narrow supply of reserves on the other," he also said, according to ABC.

Both China and Moscow support such a plan, but U.S. leaders have vehemently insisted that empowering the IMF's special drawing rights, or establishing another fund with a global pull similar to the dollar, is not necessary.

The United Nations Conference on Trade and Development has also offered its support to the idea, suggesting that an as-yet-unformed regulatory committee oversee the new currency, which would be traded almost exclusively by governments.

European leaders such as British Prime Minister Gordon Brown and French President Nicolas Sarkozy have also called for an expanded role for the IMF in the emerging global economy.

The IMF's special drawing rights were created in 1969 as a way of supplementing countries' currency reserves. Their value is determined by a formula based on the values of the US dollar, the British pound, the Japanese yen and the Euro. The IMF has been using SDRs to help shore up the finances of poorer nations amid recent economic uncertainty.

"There may be a need for a clearer mandate to pursue risks for global economic stability, but also -- I stress -- for financial stability," Strauss-Kahn said.

"During the crisis, the Fund proved its worth to the world."

But Strauss-Kahn said that as the world slowly emerges from the worst financial crisis since the Great Depression, "we must build on this positive momentum: to transform the Fund into an institution even better equipped to meet the challenges of the post-crisis era."

The bulk of the IMF's efforts today are conducted on a country-specific basis, but this will not be sufficient to avoid or even dampen a major crisis in the future.

The 186-nation IMF already provides economic assessments of individual member countries and publishes reports on the world economic outlook and the stability of the global financial system.

But in the years preceding the crisis, the Fund did not foresee the risk from a US housing meltdown that led to a credit crisis and a financial firestorm that engulfed the globe.

"We are floating the idea of a new multilateral surveillance procedure. This would allow -- indeed require -- the Fund to assess the broader and systemic effects of country-level policies, and the associated risks, in a fundamentally different way," Strauss-Kahn said.

The role of guardian of systemic stability would be backed up by new financial firepower.

The IMF has tripled its lending capacity over the past year, to 850 billion dollars, thanks to loans from member countries. The expanded financial resources "should be sufficient to meet demand in the coming period," he said.

Strauss-Kahn recalled that in the global crisis, key emerging market economies seeking financial lifelines had not turned to the Fund as the "first responder," but instead approached the US Federal Reserve and other central banks for currency swaps.

"In this context, we are currently exploring various options -- including for short-term, multi-country credit lines that the Fund might extend in a systemic crisis," he said.

Strauss-Kahn proposed increasing the flexibility and accessibility of the new Flexible Credit Line that the IMF created last March.

Available to any member country whose economy is deemed well-managed by the Washington-based institution, the facility currently allows Mexico, Colombia and Poland to tap credit as needed.

Strauss-Kahn also suggested the IMF could work with "regional reserve pools" which he said "can be a positive and stabilizing force in international financing."

He cited the IMF's recent cooperation with European Union lending to help three EU members: Hungary, Latvia and Romania.

With AFP.

The CIA and "Masters of Gold"

This from ZeroHedge:

The CIA Chimes In On Gold Control; Highlights Historical Gold-To-Foreign Holdings Shortfunding

After yesterday we highlighted a declassified document by the Department of State, in which it was made clear just how critical it is for the US to remain "Masters of Gold", today we present a comparable memorandum from the same time period (December 1968) this time by the CIA, which presents comparable key high-level gold-related deliberations by the then-administration.

Some of the key points:

We lose influence in world affairs whenever:

• The dollar is weak in exchange markets
• There is a major outflow of gold; and/or
• We are obliged to pressure countries into holding dollars or giving us payments assistance

Our position can also be improved by action on the international monetary system itself to:

• Decrease vulnerability to confidence crises
• Increase world monetary reserves (liquidity); and
• Improve tools for adjusting payments surpluses and deficits

With $33 billion of foreign dollar holdings ($16 billion in official hands) and only $10.7 billion of gold in the U.S. reserve, the risk is clear. To contain these pressures our strategy is:

• To isolate official from private gold markets by obtaining a pledge from central banks that they will neither buy nor sell gold except to each other;
• To bring South Africa to sell its current production of gold in the private market, and thus keep the private price down.

And here are the seeds for the need for a fiat currency: growing an economy when monetary supply (and, by implication, currency devaluation) is limited, can only pad the growth rate for the core economic entities so much.

Increasing liquidity

Trade won't be able to grow, and the system will remain vulnerable to speculation unless there is regular growth in the international money supply.

Gold can't provide the needed increase: industrial and speculative demand is too high. U.S. payment deficits can't either: foreigners are unwilling to hold more dollars when we run large deficits and unable to increase net reserves by accumulating dollars when our deficits are small.

Our strategy is to supplement gold and dollars with a new international asset, Special Drawing Rights (SDR).

And, of course, if the SDR does not work, the fall back reserve currency can always just be printed in limitless amounts, thus allowing massive liquidity-based expansion in the trade system, which will further allow the U.S. to grow its trade deficit to record amounts. Just fast forward 41 years.

Indeed, this document was presented before the gold standard was officially abolished. However, in the very near future Zero Hedge will disclose documents that highlight how even in the post-1971 world, gold was still perceived with the same liquidity management and "strategic control" interest as ever before.

CIA 1968 Financial Crisis

Fed Govt Gold Manipulation 101

Image by Getty Images via Daylife

The following is an excerpt from Tracy R Twyman's forthcoming book, Ex Nihilo.

Who Stole My Cheese? IMF looting of US gold reserves, Fed’s illegal manipulation of gold market

When the International Monetary Fund was created at the Bretton Woods international conference in 1944, the member nations were asked to chip in a certain quota of money, related to the assessed size of that nation’s economy. This contribution was to be made 75% in that nation’s own currency, and 25% in gold, or in “currency redeemable in gold”—in other words, the dollar. This is how the US dollar became the “reserve currency of the world,” held in great volume by the central banks of the other participating countries. We agreed to redeem these dollars for gold for the other central banks upon demand, at the fixed price of $35 per ounce.

This became quite a problem over the years. The problem was that in order for the system to actually work, the US would need t very strictly control the value of its currency. This would meant that America couldn't go printing money willy-nilly whenever they needed to pay for more social programs, or for military adventures. But of course, that was exactly what the US Congress proceeded to do over the next three decades. By 1971, the dollar had inflated considerably, and foreign central banks had looted the US gold reserves, so the Federal Reserve were only enough to cover 22% of the dollars in existence. West Germany and Switzerland pulled out of the Bretton-Woods system, and the demand for gold payment from other central banks increased even more, because those banks could then turn around and sell this gold on the open market at tremendous profit. The US dollar was standing on a precipice.

This was what motivated President Nixon to make a unilateral decision, without consulting the IMF, to close the “gold window” and stop redeeming dollars in gold. This was the final nail in the coffin of the Bretton Woods system, and unhinged the value of the dollar from gold completely. The international banking elite was enraged. Nonetheless, while it did not stop inflation, it did slow down the looting of Fort Knox and put the dollar on life support for a few more decades.

But “life support” is exactly what has been required ever since then. Because the US still does redeem dollars for gold for foreign central banks, via the IMF’s own currency, SDRs (Special Drawing Rights). Since 1975, gold has again been a legally traded commodity in the United States. And while the price of gold has fluctuated considerably, it has since then always been much higher than $35 an ounce. Presently the market value of an ounce of gold is inching towards $1000 an ounce. Yet the US is still redeeming SDRs for a mere $42.50 per ounce of gold so that they can be sold to large bullion banks and dumped onto the open market (a process technically called “dishoarding”). Our gold reserves are still being looted by the banksters.

But they are doing this for a specific reason. They need to dump gold on the market at below market value to keep the price of gold artificially suppressed, or else the fiat currencies of the world would collapse, and businessmen would begin to insist on doing business only in real money: gold and silver coin. To hide what they are doing, IMF-controlled central banks are allowed to report their gold certificates (paper that represents the gold that they have “leased out” or dishoarded) in the same column on their balance sheets where the gold reserves themselves are reported. So nobody actually knows how much gold is in reserve anymore. The last independent audit of Fort Knox happened in 1955. One was attempted during the Reagan administration, but the Federal Reserve thumbed its nose at the President, and the audit was never completed.

The evidence of dishoarding being used to suppress the price of gold (and thus prop up the fiat currencies) is overwhelming. In fact, Alan Greenspan actually admitted it in front of Congress on July 24, 1998 when he said: “Central banks stand ready to lease gold in increasing quantities should the price rise.” An international organization called the Gold Anti-Trust Association (GATA) has been formed, consisting of gold investors who resent their market being manipulated secretly and illegally by banks with the collusion of government. They even took out a full-page ad in the Wall Street Journal in recent years informing investors of what was going on. Strangely the ad, and all other public pronouncements from the group, have been ignored by the financial press so far. More...