Bloomberg: UN Says New Currency Is Needed to Fix Broken ‘Con

[Lurker]

UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’

The dollar plunges overnight - dollar index sets new year low. Spot gold surges past $1000. I had a strange feeling last week that some big financial news was about to break - the Chinese were warning. Folks a weakening dollar is not good for the US! It makes our dollars buy less on the open market. It looks like the dollar decline has stopped for now as a disorderly drop would be chaos - central bank intervening is probably occurring.

http://www.bloomberg.com/apps/news?pid= ... p9VoPeHquI

Sept. 7 (Bloomberg) -- The dollar’s role in international trade should be reduced by establishing a new currency to protect emerging markets from the “confidence game” of financial speculation, the United Nations said.

UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability.

“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. “An initiative equivalent to Bretton Woods or the European Monetary System is needed.”

The 1944 Bretton Woods agreement created the modern global economic system and institutions including the IMF and World Bank.

Enhanced SDRs

While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies, it wouldn’t be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former German deputy finance minister who worked in 1997-1998 with then U.S. Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.

Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocations, the UN said. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.

“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”

The 45-year-old UN group, run by former World Trade Organization chief Supachai Panitchpakdi, “promotes integration of developing countries in the world economy,” according to its Web site. Emerging-market nations should consider restricting capital mobility until a new system is in place, the group said.

The world body began issuing warnings in 2006 about financial imbalances leading to a global recession.

The UN Trade and Development report is being held for release via print media until 6 p.m. London time.

[coriolis]

A new world currency? No thanks. Let the speculators stew. I think most americans would prefer to keep the dollar, even if it means a roller coaster ride. There's going to be good times and bad times. Good people will do ok regardless. The UN overestimates it's own ability to do any good. Either that, or they give lip service to doing good to cover their nefarious schemes.

I hope this doesn't spark a political battle. If it does, I'll be the first to delete my own post.

[Lurker]

A new world currency? No thanks. Let the speculators stew. I think most americans would prefer to keep the dollar, even if it means a roller coaster ride. There's going to be good times and bad times. Good people will do ok regardless. The UN overestimates it's own ability to do any good. Either that, or they give lip service to doing good to cover their nefarious schemes.

I hope this doesn't spark a political battle. If it does, I'll be the first to delete my own post.

In this case it is not speculators but policy setters. Barrick Gold just announced that they are ending their hedges on gold. Inflation (dollar destruction) is the only possible outcome now. If this doesn't scream inflation I don't know what does. They are going to float instead of hedge gold because in their words:

"- an increasingly positive outlook on the gold price. The Company expects global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies; and

- continuing robust gold supply/demand fundamentals.

In addition, Barrick believes that the Gold Hedges and the Floating Contracts were adversely impacting the Company's appeal to the broader investment community and hence, its share price performance."

http://finance.yahoo.com/news/Barrick-A ... l?x=0&.v=1

[coriolis]

Probably true, but too technical for my liking. I just go to work and come home every night.

[dixiebreeze]

"Brave New World" and "1984" is on the horizon -- if it's not already here.

[Stephanie]

IMHO, it's just another currency that the investors and speculators can screw up eventually. They'll be trading, hedging and floating that one in no time flat. While the economic destruction of the past year and a half did affect the global markets in some form or another, if this "new fangled" one goes so does EVERYONE. It will all in the name of greed and it will once again be our latest destruction.

[Lurker]

IMHO, it's just another currency that the investors and speculators can screw up eventually. They'll be trading, hedging and floating that one in no time flat. While the economic destruction of the past year and a half did affect the global markets in some form or another, if this "new fangled" one goes so does EVERYONE. It will all in the name of greed and it will once again be our latest destruction.

That's why we need a currency backed by gold and not allowed to float. All you have to do is look at what's happened to the dollar since the gold window was closed in 1971. Gold has jumped from $35 to the present price of 1000. But it really isn't gold jumping it is all the excess dollars chasing a scarce item - inflation is causing the price jumps. Floating currencies are always driven to their deathbed.

[Stephanie]

I did not realize that was the consequence with the dollar not being tied to gold.

[MGC]

I look for the dollar to continue to fall due in part to excessive US Government borrowing. I would not be surprised if we face another financial crisis soon. The dollar is nearly worthless and if oil is tied to another currency (Euro) than it will be bad......MGC

[Lurker]

Perfect theme song for the US dollar going forward. Some say this is good for the country since it helps our exports. No superpower has a weak currency. I'm getting concerned that we are getting past the point of no return.

http://www.youtube.com/watch?v=b7O5rg69Y7o