As America's balance of trade continues to weaken it, and the dollar's value erodes, the question arises, what could replace the greenback as the world's trading currency?
Assuming that gold reserves are relevant to trust in the currency, it's interesting to note that Germany has almost half as much as the US, and its balance of trade is not so unhealthy. Interesting also that the German mark, although currently in a fixed exchange rate with the Euro, still has a nominally separate existence.
Julian Phillips (GoldForecaster.com) says in his 29 June article, "Germany is aware that the times they are a-changing, and so it is keeping one eye on the future of the global economic and monetary order – and guarding against it."
Here are the four greatest world holdings of gold (June '07 World Gold Council figures):
United States 8,133.5 tonnes
Germany 3,422.5 tonnes
IMF 3,217.3 tonnes
France 2,680.6 tonnes
France has a negative balance of trade, and has reduced its gold hoard by around 11% since 2000, but nevertheless, between them the last three on the list above have gold reserves totalling 14.5% more than the US. Politically, France and Germany are the Western core of the EU. If things change radically, who knows what the new world order may look like?
7 comments:
Isn't the euro already the defacto reserve currency, and the US is more than a little miffed , hence manoeuvres in various EU member states to weaken the federal constitution?
This is where I could certainly do with a political mentor/trix. Can you elaborate, please?
Hope the tractor feud is not intractable.
Well, I thought that there was a move to settle for oil in euros and the US were unhappy about this. (Not that it matters which currency is used for settlement).
Isn't the dollar so weak that most reasonable people would rather not hold it but the Chinese, who have lots, are holding it up simply to protect themselves, and wield the political power this status confers? And aren't the US getting their friends to prop up the dollar (cf Brown etc in the UK) to alleviate this situation?
It must be jolly irritating to be an imperial power with a crappy currency no-one wants to hold and most of which is held by the Chinese.
But I did say hands are wrung over my finance with feeling approach.
Gold is beyond my understanding; why hold it in the modern financial world unless there is a fear that we are going to be in primitive circumstances shortly? Why dig it up just to put it back ?
Those who hold gold are economic scaredy cats with basic instincts. Do I win the prize?
Raedwald thinks the time has come to have a basic set of resources stored; frankly, I've set up more than a store cupboard, I've set the farmland going, and secured water resources and natural energy supplies as well. Not interested in holding gold though.
sackers, your output is so lengthy I don't know the best way to maintain a thread, but here's a response to yesterday's brief exchange
important things first, NSFW = not safe for work
even MORE expensive ... laughing-stock - yes, that is more or less my take on it: crass, but I can't see how it's structurally dangerous. So I keep waiting for someone to explain to me whether the 'Enron' tag is more meaningful than just an insult
playing with fire - that is a fantastic quote. What worries me is that in response to all the current leftish / trotskyite / EU-federalist nonsense, many on the right are coming up with counter-proposals that are equally uninformed about the properties of the flame
don't give a price AND a timeframe - too right. As Keynes said, about future prices we know nothing.
HG - on the money as ever, in a world of near-perfect FX market liquidity it is irrelevant what currency is used to settle an oil import bill. I am constantly amazed how many people run around with the idea it matters in any fundamental sense. (as an emotive issue, well, that's another thing altogether)
Iran wants yen from the Japanese for its oil; China is reportedly looking to diversify its foreign currency reserves. I have more work to do on this.
For China, a yuan kept down against the dollar helps with the continuing inflow of money and build-up of industrial assets. James Kynge thinks there's a matter of national pride also, and this should not be underestimated.
I don't think China wishes to destroy the West, as Mao did (he contemplated a global nuclear war with doctrinal satisfaction). But the leadership has a tiger by the tail, in that if the Chinese economy stalls, they will have to answer to the people.
Gold is partly a matter of lack of trust in politicians, but it is also scarce, durable and beautiful. It's interesting that, broadly speaking, it has kept its real purchasing value (please see my 31 July post at http://theylaughedatnoah.blogspot.com/2007/07/have-i-got-my-sums-wrong-or-right.html ).
Michael Panzner (author of Financial Armageddon, reviewed here - http://theylaughedatnoah.blogspot.com/search/label/Book%20review%3A%20FINANCIAL%20ARMAGEDDON ) predicts an economic cataclysm and does indeed advocate stocking up. This is not a realistic option for most of us, especially in an overcrowded island like Britain, where we are too close to too many other people that we don't know, but your precautions seem wise to me. I have long ago said to my brother and my best friend that you cannot defend yourself alone; you need the protective network of a close-knit community around you. And in any case, a pleasure to live that way - if they don't snitch on your garage.
Scaredy cats? Or mineshaft canaries? Events can turn fools into wise men.
Nick - in the context of the overall massive waste of national wealth, I can't see that PFI makes much difference. Enron is just another term in the scary-speak economic dictionary. But it does bear on modern politicians' incompetence and their culture of deception.
Settling oil bills - it does make a difference, in that if America's currency is no longer accepted then there will be, to quote Richard Daughty, a firestorm of inflation in the US, and then we'll feel the heat.
The Hitch - NSFW indeed, I don't think I can put it on my blogroll, though I might read it when drunk.
I'm looking at platinum, rather than gold.
Why?
Because it's a more useful metal!
1) It's a more dense store of value.
2) it's a catalytic metal used in car exhausts.
a win each way really.
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