This was a fascinating read and I recommend it to you. Necessity and difficulty is the birthplace of innovation and ingenuity. In the world financial markets, there is much difficulty and the necessity to find a better way. It is good to know at the very least one of the innovations being pushed. Something very similar was pushed in the original Bretton Woods - it may be gaining traction and was proposed at the recent Bretton-Woods. I know too little of this to say whether it is good or not - but being aware is the first step in making those judgements.

BEIJING – China is calling for a new global currency to replace the dominant dollar, showing a growing assertiveness on revamping the world economy ahead of next week's London summit on the financial crisis.

The surprise proposal by Beijing's central bank governor reflects unease about its vast holdings of U.S. government bonds and adds to Chinese pressure to overhaul a global financial system dominated by the dollar and Western governments. Both the United States and the European Union brushed off the idea.

The world economic crisis shows the "inherent vulnerabilities and systemic risks in the existing international monetary system," Gov. Zhou Xiaochuan said in an essay released Monday by the bank. He recommended creating a currency made up a basket of global currencies and controlled by the International Monetary Fund and said it would help "to achieve the objective of safeguarding global economic and financial stability."

Zhou did not mention the dollar by name. But in an unusual step, the essay was published in both Chinese and English, making clear it was meant for a foreign audience.

China has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the crisis that might weaken the dollar and the value of Beijing's estimated $1 trillion in Treasuries and other U.S. government debt.

For decades, the dollar has been the world's most widely used currency. Many governments hold a large portion of their reserves in dollars. Crude oil and many commodities are priced in dollars. Business deals around the world are done in dollars.

But the financial crisis has highlighted how America's economic problems — and by extension the dollar — can wreak havoc on nations around the world. China is in a bind. To keep the value of its currency steady — some say undervalued — the Chinese government has to recycle its huge trade surpluses, and the biggest, most liquid option for investing them is U.S. government debt.

To better insulate countries from the ills of one country or one currency, Zhou said the IMF should create a "reserve currency" based on shares in the body held by its 185 member nations, known as special drawing rights, or SDRs.

He said it also should be used for trade, pricing commodities and accounting, not just government finance.

President Barack Obama described China's proposal as unnecessary during a prime-time news conference Tuesday.

"I don't believe that there's a need for a global currency," Obama said.

The president also pointed to the current strength of American money. "The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world."

Earlier in the day, both U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke took similar positions at a congressional hearing. They were asked by Rep. Michele Bachmann, R-Minn., if they would "categorically renounce the United States moving away from the dollar and going to a global currency," and both said they would.

And the European Union's top economy official said the dollar's role as the international reserve currency is secure despite China's proposal.

"Everybody agrees also that the present world reserve currency, the dollar, is there and will continue to be there for a long period of time," EU Commissioner Joaquin Almunia said Tuesday after a meeting of the European Commission.

Zhou also called for changing how SDRs are valued. Currently, they are based on the value of four currencies — the dollar, euro, yen and British pound. "The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies," he wrote.

Beijing has been unusually bold in recent months in expressing concern about Washington's financial management and pushing for global economic changes. That reflects both its relative financial health and growing concern that increased globalization means missteps abroad could harm its own economy.

Zhou's comments are also part of China's longstanding push to reform the IMF, World Bank and global financial system to give greater voice to China and other developing economies — another theme that will be heard from China, Brazil, Russia and India at the summit of Group of 20 major economies next week.

"Overdue reforms should give proper representation to and increase the say of the emerging and developing economies," Yi Xianrong, a researcher with the Institute of Economics and Finances at the Chinese Academy of Social Sciences, a government think-tank, wrote in the government newspaper China Daily.

"Proper representation and a bigger voice for the developing countries are the need of the hour. For instance, being the world's third-largest economy and the largest foreign reserves holder, China should get its due place in the monetary body."

Another idea Yi raised was that the U.S. and Europe should give up their traditional privileges of appointing the heads of the World Bank and the IMF.

The idea of a creating a new global reserve currency isn't new. But analysts say the proposal isn't likely to gain much traction because it faces major obstacles. It would require acceptance from nations that have long used the dollar and hold huge stockpiles of the U.S. currency.

"There has been for decades talk about creating an international reserve currency and it has never really progressed," said Michael Pettis, a finance professor at Peking University's Guanghua School of Management.

Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar.

"It's hard for me to imagine how it's going to be easier for the world to have a common currency for trade," he said.




Found at http://news.yahoo.com/s/ap/as_china_global_currency;_ylt=AsRGullY0NX5bnWrdQuewGnZn414 on March 25, 2009.

This week I had some great correspondence with a very good friend of mine. We wrote back and forth regarding Monetary Policy. Below is the bulk of that correspondence. I thought you would learn from & enjoy the content:

Ezra Taft Benson in his landmark speech said, "I believe in honest money... I regard it as a flagrant violation of the explicit provisions of the Constitution for the Federal Government to... use irredeemable paper money." You can read the full text of that speech here: http://laissez-fairerepublic.com/benson.htm I love that speech and agree with almost all of it. However, I do not agree with the entirety of that sentance.

Our currency is not redeemable by the government. I cannot go to the government and turn in $100 for anything other than $100 in ones, twenties, tens, fives, etc. Our currency is non-redeemable by the government but it is redeemable by purchase.

The constitution says the following:

"The Congress shall have Power . . .To borrow Money on the credit of the United States; To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;To provide for the Punishment of counterfeiting the Securities and current Coin of the United States. . ."

I believe in honest money as well but I also believe that the love of money is the root of all evil so it is hard to have anything honest as far as government and money are concerned.

Adam Smith in his landmark book on economics (published in 1776 and used by our founders) discussed the wealth of nations (hence its title). He concluded that the true wealth of the nation was not in gold, but in labor. The wealth of the nation, the true wealth isn't determined by the gold in the King's coffers but by the production, the labor, the capacity of the population to create products. The more a country produced the wealthier it truly was. If you consume more than you produce there is an imbalance of trade and it keeps the low producer poor - despite the consumption of more products. It keeps you indebted and in that sense poor (although there is a mirage of wealth). This was the way of the colonial empires - conquer a nation, take their gold and make them produce for the empire and control the things that they could buy. It kept them in poverty and enriched the state. Adam Smith saw great problems with that model. The only way to increase the wealth of the nation was to increase the money in the King's coffers. That would lead to wars, death, suffering and a lack of production - the king got richer while the people got poorer.

If Smith was correct, that the true wealth of a nation is the labor, why not create the monetary system based on that? Why not back it up by the people of the nation rather than by gold? If people work harder the gold doesn't come any easier. As a matter of fact, as people work harder and the people grow & multiply, the money supply gets proportionately smaller & smaller. Wages don't rise - they fall (unless Congress inflates the value of the money) because there is a smaller and smaller amount of gold to go around. It is kind of like a loaf of bread, if I have a family of 5 at the dinner table, we all can get a few slices of bread at dinner. If I have a family of 50, we all get scraps. If I have a family of 200,000,000, most don't even get crumbs. Many people suffer in that kind of a system. Bread you can produce more of, gold you can't. You can also eat bread. You can't eat gold. Our money is like bread. If we can cook it, we will. And if we do, we will eat it.

The problem is if we cook more money than we had the capacity to cook. For example, if productivity rose by 3% in the first quarter, but we created 50% more money than that, then the money is inflated. There is so much bread out there that it isn't worth that much any more. Who needs 50% more bread than they can eat? We have to wait until it goes bad, then start cooking some more. If we only produced 2% then the value is actually deflated. The bread is actually worth more because there is less to go around. Even though it is worth more, what you get doesn't satisfy. When we create too much of a product, and inventories rise, we have inflation and then a recession.

I think a money system built truly on labor is the only honest money out there. The problem is, men are not honest - especially most of our elected officials. They make me ashamed. Our world needs us & we have filled the halls of congress it seems almost entirely with the most uncooperative group of self serving people in the whole country. How can we trust them to coin money? It is probably best as is - However, we need to amend the constitution to allow for it.

Monetary policy today could use some tweaks. One major one that I see would be that we could create a means to only increase the money supply proportionality to labor with exceptions to be approved by congress. This would truly tie the "coinage" of money forever to the wealth of the nation - labor and the people.

Our founders did coin paper money - but it was all redeemable. I do believe that we have learned from the founders and that over the course of 230 years that we have learned some things and that maybe there are better ways to do things than our founders originally wrote into the constitution. For example, we recognize the ability of every citizen to vote. We recognize the right of every citizen to own property. We recognize the right of every citizen to make a contract. We recognize the right of life perhaps more than did our founders. We recognize the equality of all mankind in employment law. All of these are advances that I think they would hail, but at the time did not see possible for the country. At the same time, our founders did understand more than our leaders do today about the appropriate definition of the separation of church and state. They understood more about the true meaning of limited government. They understood our federal system. They understood the need for checks and balances. Jefferson also understood that the nation would grow and change and learn and actually recommended a new constitutional convention every 20 years. They understood the brilliance and the dynamic nature of man and the miraculous providence of God.

I, like you, am greatly concerned about "socialism." However, I don't necessarily view our current government intervention as socialism. I worry that it is not socialism at all - I view it as pure government favors to big businesses that are crafted in a manner that is intended to look like it benefits the people. Politicians rarely get elected because of their good will towards the voter. I sound pretty cynical don't I? I don't mean to be - I just see too much of this perhaps to feel good about it any more. For example, government controlled health care - who does it really enrich? It enriches the insurance providers (imagine that, government mandated customers!) and the health care industry (imagine that - unlimited customers now!). Government bailouts of Fanny Mae & Freddie Mac - who does it really benefit? It really benefits the businesses. And it also benefits the politicians because they can say they did this for the people and then get re-elected. That is what is alarming. Socialism in its truest sense wasn't about that - it was about truly protecting the people from this kind of mess - but at the expense of the other freedoms - life & property - which is where Socialism's true evil came in. Communism attacked those plus liberty. This has strayed far from that. I think this is under the guise of socialism but is in fact something else. I worry about it too. How long can the people afford this kind of reckless management of the country? Time will tell.

Thanks for Reading.