TheDailyBell – Issue 236 â€¢ Tuesday, March 24, 2009
“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand
China wants IMF to manage new one-world reserve currency
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund. In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan (pictured left), the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”. Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China. “This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC. Although Mr. Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system. “The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr. Zhou wrote. – Financial Times
Dominant Social Theme: China, concerned, suggests alternatives.
Free-Market Analysis: Wow, out of left field. The International Monetary Fund is attracting encomiums from all over the place! Even China. China! Some big shot in China sees the same positive qualities in the IMF that the English Prime Minister and the French President see in that world-spanning organization. Incredible. What are the odds? And where does this man – whom few have heard of – Zhou Xiaochuan come from? And why would he be interested in the IMF? Well, let’s look a little deeper. …
Hm-mm. We are doing our research … He is certainly a most interesting and powerful banker – and comes from a powerful family. His father, a leading communist, was apparently mentor to China’s most powerful bureaucrat in the 1990s – Jiang Zemin. As for Ziaochuan himself, Wikipedia informs us that: In December 2002, he was appointed to his present position as governor of the People’s Bank of China. As leading banking authority, Zhou is in charge of clearing up some $865 billion bad loans in the Chinese banking system. Recently he has been under pressure from the finance ministers and central bankers of the G7 countries, to revalue the Renminbi and change its exchange rate-setting mechanism. Later on, in 2005 Zhou joined the influential Washington-based financial advisory body, the Group of Thirty.
Zhou, is apparently considered perhaps the most “academically capable” of the current Chinese leadership and has been called “China’s most able technocrat” (Wikipedia). His most famous motto: “If the market can solve the problem, let the market do it. I am just a referee. I am neither a sportsman nor a coach.” Additionally, Zhou is said to be known for hiring Chinese who have been trained overseas and have real Western market experience.
But from our point of view, perhaps Zhou’s most interesting feature as a Chinese leader is his participation in the Group of Thirty. The Group of Thirty, often abbreviated to G30, is an international body of leading financiers and academics which aims to deepen understanding of economic and financial issues and to examine consequences of decisions made in the public and private sectors related to these issues. … The group is noted for its advocacy of changes in global clearing and settlement. The group consists of thirty members and includes the heads of major private banks and central banks, as well as members from academia and international institutions. It holds two full meetings each year and also organizes seminars, symposia, and study groups. It is based in Washington, D.C. The Group of Thirty was founded in 1978 by Geoffrey Bell at the initiative of the Rockefeller Foundation, which also provided initial funding for the body. Its first chairman was Johannes Witteveen, the former managing director of the International Monetary Fund. Its current chairman of trustees is Paul Volcker. (Wikipedia)
Certainly we are familiar with some of these names, especially Paul Volcker, former chairman of the US Federal Reserve. “After leaving the Federal Reserve in 1987, he became chairman of the prominent New York investment banking firm, J. Rothschild, Wolfensohn & Co., a corporate advisory and investment firm in New York, run by James D. Wolfensohn, who was later to become president of the World Bank.” (Wikipedia) Volcker also headed the recent panel that investigated the United Nations scandal and is currently a senior economic advisor to Barrack Obama and head of the President’s Economic Recovery Advisory Board. Also, we note this: The Group of Thirty’s first chairman was Johannes Witteveen, the former managing director of the International Monetary Fund.
In a previous Daily Bell article, we pointed out how certain politicians were making the case for the International Monetary Fund to become a kind of global regulator – and even holder of reserve currency. British Prime Minister Gordon Brown has been a big IMF backer in this regard for some reason. And the IMF itself recently launched a scathing report that flagellated its own performance in the most recent crisis, but then slyly hinted that the reasons for its abysmal failures had to do with a lack of resources and a lack of power. With more of each, IMF leaders seemed to say, the IMF would do a great deal better.
And the tide keeps building. What about this just recently offered perspective…
The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system. The International Monetary Fund should investigate the possible creation of a new reserve currency, widening the list of reserve currencies or using its already existing Special Drawing Rights, or SDRs, as a “super-reserve currency accepted by the whole of the international community,” the Kremlin said in a statement issued on its web site. (Moscow Times)
Now comes leading Chinese technocrat Zhou Xiaochuan to add an Eastern perspective to the IMF’s gloss. One would like to think that Zhou arrived at his perspective entirely on his own, but certainly those in the West with whom Zhou interacts would seem to have various pro-IMF prejudices. The first Group of Thirty chairman (the group to which Zhou belongs) has direct links to the IMF. Another member of the Group of Thirty, Paul Volcker was in business with James D. Wolfensohn who became president of the IMF’s sister organization, The World Bank.
Conclusion: We were all set to believe that Zhou came to his conclusions by himself, from rigorous study of the way the world works. But now we are not so sure. And here is a question that gives us a bit of a headache: Where does all this enthusiasm for the IMF come from in the first place? So many important people want the IMF to step up and assume a bigger international role. Why? First Gordon Brown, then the Obama administration and even, incredibly, the Kremlin. And now China!
Is it because of the competence of the IMF? No, can’t be. The agency itself admits it is incompetent – and others say far worse things about it. And yet the calls for its enlargement continue. It seems almost like an orchestrated campaign, but a campaign that includes Europe, Russia and China? Who or what would have the resources and clout to put together such a campaign? And why would someone – anyone – want to do so. Impossible! And yet … it really is quite curious. As Alice would say, “curiouser and curiouser …”
IMF to clean up banks and tackle dire world crisis?
The world is in a dire economic crisis, but no recovery is possible until the financial sector is cleaned up, the head of the International Monetary Fund said on Monday. The crisis will push millions into poverty and unemployment, risking social unrest and even war, and urgent action is required, IMF Managing Director Dominique Strauss-Kahn (pictured left) said. “Bluntly the situation is dire,” he told a meeting on the crisis at the International Labour Organisation, a United Nations agency representing unions, employers and governments that studies labour issues. Strauss-Kahn was talking less than two weeks before a summit of the G20 leading nations on April 2 to tackle the crisis. As the crisis spills over into developing countries, millions of people will be pushed back into poverty and hardship, Strauss-Kahn said. “All this will affect dramatically unemployment and beyond unemployment for many countries it will be at the roots of social unrest, some threat to democracy, and may be for some cases it can also end in war,” he said. – Reuters
Dominant Social Theme: Another sterling analysis by the IMF.
Free-Market Analysis: Don’t get us wrong. We are impressed. The IMF has been way out in front on all of this. In fact, the Reuters article excerpted above, notes at its end, the following: The IMF’s experience of 122 banking crises around the world had taught it that economic recovery was impossible until banks were cleaned up, whether this was done quickly or slowly.
Now we didn’t realize that the IMF specialized in banking crises – we thought it specialized in COUNTRY crises and GOVERNMENT budget crises, but perhaps “banking crises” is just another term of art. Of course, why the IMF wants to be known as a specialist in banking crises is kinda strange – and why Reuters would just throw in that tidbit at the end of an article on the IMF is also a bit weird, but these things happen … serendipity, we guess.
While we are at, we want to express our admiration for IMF managing director Dominique Strauss-Kahn often known as DSK. We are not big fans of the IMF, but DSK’s recent agile stewardship of the IMF from a public relations standpoint is impressive to behold. He’s been all over the news lately and always seems to pro-offer the right kind of quote for the moment. We went to trusty Wikipedia again (well not so trusty but on top politicos it usually gets it right, or close-to-right) and found that DSK is a pretty big mover and shaker in French politics. Here’s a little bit on DSK:
DSK served as French Minister for Industry (1991-93). In 1991, he was nominated by Mitterrand to be Junior Minister for Industry and Foreign Trade in Ã‰dith Cresson’s social-democrat government. He kept his position in Pierre BÃ©rÃ©govoy’s government until the 1993 general elections. After the electoral defeat of 1993, Strauss-Kahn was appointed by former Prime Minister Michel Rocard chairman of the groupe des experts du PS (“Group of Experts of the Socialist Party”), created by Claude AllÃ¨gre. The same year, he founded the law firm “DSK Consultants” and worked as a business lawyer. In 1994, Raymond LÃ©vy, then director of Renault, invited him to join the Cercle de l’Industrie, a French industry lobby in Brussels, where he met the billionaire businessman Vincent BollorÃ© and top manager Louis Schweitzer; Strauss-Kahn served as secretary-general and later as vice-president. This lobbyist activity earned him criticism from the alter-globalization left.
We were interested in Vincent BollorÃ©, because we had heard the name before. He, too, is an impressive fellow. A French industrialist, corporate raider and businessman, he heads the family investment group BollorÃ© and is ranked 451st richest person in the world according to Forbes, with an estimated fortune of US$1.7 billion. He is married, with 4 children. Vincent BollorÃ© is from a well-off family from Brittany, and he graduated with a Bachelor of Laws (LLB) degree from UniversitÃ© Paris X Nanterre. BollorÃ© started his investment career as a bank trainee at investment bank Edmond de Rothschild. His personal investment career began when he took over the reins at his family-controlled conglomerate BollorÃ©, which deals in maritime freight and African trade, and paper manufacturing (cigarette and bible paper). The company he leads today employs 33,000 people around the world.
These two men move in impressive circles and it is no wonder that the IMF continues to have clout on the world stage given the kinds of corporate personnel behind it. Of course, as we have pointed out above, the IMF’s resources and allies apparently extend far beyond its immediate circle. And many of these allies seem to want the IMF to play a larger role in world affairs.
Conclusion: We are not surprised that the IMF is issuing warnings about the grimness of the world economic climate. It makes perfect sense if one believes that the IMF leadership is positioning itself for expanded power under the aegis of the Group of 20 that will meet in April. Certainly the stars have all aligned. It is an almost magical event – with Europe, Russia and now China all calling for the IMF to have more power and responsibility. The IMF itself has not shied away from increased duties. It has publicly declared it doesn’t have the resources to do a good job. Now, with this latest announcement, the IMF shows us that the world is indeed in dire straits. Must the IMF come to the rescue? Well, we’re not so sure. Maybe the G20 upcoming communiquÃ© will help change our minds.
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