The 50th anniversary of the Global International Monetary Policy – Issues and Transition – Nairametrics
August 15, 2021, marked the fiftieth anniversary when the former President Richard Nixon announced the cessation of the gold-dollar exchange standard of international trade, replacing it with the U.S Dollar as a reserve currency and a hegemony for global trade in the year 1971.
The major cause of this change was the huge demand for gold bullion from major countries who recorded trade surpluses in their balance of trade while America’s stock of gold bullion was heavily depleted; coupled with various wars and unfunded expenditure programs.
Historically the world transited from gold international standard from the late 18th century with British Pounds Sterling as the dominant currency, to the gold-dollar exchange standard after the end of the first World war and the birth of the Bretton Woods institution in 1944 which saw the rise in prominence of the Dollar for global trade.
Apart from the dynamics of nature as constantly evolving, with technological advancements that have given rise to higher productivity at a cheaper cost, the fundamental cause of these changes has been economic policy failures by governments over time, which has led to the loss of confidence in the global financial landscape.
With the introduction of the Dollar as the global reserve currency and the cessation of the redemption of gold as an ‘anchor,’ the world pivoted towards a debt economy with no limits, with most central banks having the unrestricted latitude to print their national currency with ‘faith and confidence’ as the alternate anchor.
The world’s global debt stock currently stands at over two hundred and eighty-one trillion dollars with the U.S having over twenty-eight trillion dollars as debt. The challenges of these unsustainable debts were clearly elucidated in my previous article, “Resolving the global debt and liquidity crises, issues and possible solution” published on the 27th of March 2021 amidst the global health pandemic and successive depressed global growth since the global financial crises of 2008.
Before the announcement by the former President Richard Nixon, an ounce of gold traded at $43.27 as of the 13th of August 1971. The price of an ounce of gold as of July 23, 2021, stood at $1,804.30. This clearly shows a 4,069.86% loss or devaluation of the dollar from 1971 to the period stated. This is a major sign of weakness of the current global financial system of trade as investors seek safe havens to preserve wealth.
The cheapening of currency by major trading nations in a bid to boost exports has led to a currency pseudo war with America having to print its currency to support global trade and growth with a negative impact by recording successive balance of trade deficits and budget deficits also known as the Triffin Dilemma Effect.
The Society for Worldwide Interbank Financial Telecommunications was established on May 3, 1973, to provide a messaging standard and a global platform for cross border payments by a consortium of 239 banks from 15 countries back then. Its services have expanded to over 200 countries and more than 11,000 institutions around the world. It is instructive to note that this system is currently outdated and antiquated (over 48 years old), very expensive in terms of remittance cost, very slow and taking days for receipts of wired funds and settlement; and has been prone to cases of hacking and cyber warfare attacks.
The use of Distributed Ledger Technology (DLT) was clearly stated as an alternative/an improvement to the SWIFT platform with its major advantages highlighted in my article, “The Fourth Industrial Revolution and The Birth Of A New Monetary Regime” published on the 17th of March 2021.
This technology is a reflection of additional improvement on the internet, on instant messaging and communication but this time around, the internet of value (IOV).
As an addendum to my last article mentioned earlier, further steps have been taken by the major trading nations and power blocs towards the cessation of this present global international monetary system after its fiftieth anniversary this month with a transition from the Dollar as the dominant currency to a Multi-Polar Currency Regime with the use of Central Bank Digital Currencies (CBDCs), Private Digital Stablecoins and Crypto Assets as Bridget and Liquidity Assets, crypto-assets for smart contracts and the Interledger Protocol (ILP) validator that will serve as connectivity for all the public and private ledgers. These steps are as follows:
Eighty Central Banks are looking at digital currencies according to Christine Lagarde, the President of European Central Banks. (See www.coingeek.com dated July 14, 2021.)
The International Monetary Fund (IMF), World Bank and Bank of International Settlement (BIS) championed CBDCs at the G20 meeting. (See www.cointelegraph.com dated July 9, 2021.) The BIS specifically proposed three models of CBDCs to be adopted.
The US Treasury Secretary, Janet Yellen will convene the President’s Working Group on Financial Markets to discuss agency oversight of stablecoins and offer recommendations on regulating the digital currency ties to reserve assets. (See www.foxbusiness.com/markets dated July 16, 2021).
Major decisions will be reached by this group together with the United States Congress to legislate laws that will reclassify crypto assets either as security, commodity or a brand new asset class with either the Commodities Futures Trading Commission (CFTC) or Securities and Exchange Commission (SEC) or Financial Crimes Enforcement Network (FINCEN), a unit under the US Treasury Department.
I strongly opine that far-reaching decisions and communiqué will be agreed upon by member countries globally. This transition will cause a major disruption to the status quo in global finance with trade finance services, capital market operations like stocks and bonds, derivatives, metals and precious metals market, forex market, insurance and all the commodities market, tokenized and traded on the distributed ledger platform.
Contributed by: Anitche Ndudim Rowland, MD/CEO, Rugon Capital Ltd.