Britannia Radio

The newspaper’s headline here is somewhat fanciful.  I put this  
article aside from my main posting earlier because of that headline.   
I needn’t have done.

I also think A.E-P is massively jumping the gun on the narrow issue  
of a ‘global currency’ .  I cannot see that a reserve unit such as  
this can work without some mechanism for determining its value in  
relation to national currencies.  THAT will be the critical tipping  
point and - boy oh boy - it will cause the father and mother of an  
argument.

The rest of A. E-P’s comments are as usual spot on and well worth  
consideration.

xxxxxxxxxxxxxxxxxx cs
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TELEGRAPH                     3.4.09
The G20 moves the world a step closer to a global currency
The world is a step closer to a global currency, backed by a global  
central bank, running monetary policy for all humanity.

    By Ambrose Evans-Pritchard

A single clause in Point 19 of the communiqué issued by the G20  
leaders amounts to revolution in the global financial order.

"We have agreed to support a general SDR allocation which will inject  
$250bn (£170bn) into the world economy and increase global  
liquidity," it said. SDRs are Special Drawing Rights, a synthetic  
paper currency issued by the International Monetary Fund that has  
lain dormant for half a century.

In effect, the G20 leaders have activated the IMF's power to create  
money and begin global "quantitative easing". In doing so, they are  
putting a de facto world currency into play. It is outside the  
control of any sovereign body. Conspiracy theorists will love it.

It has been a good summit for the IMF. Its fighting fund for crises  
is to be tripled overnight to $750bn. This is real money.  [Not quite  
right.  Much of this was in the pipeline anyway.  A typical bit of  
Brown massaging the figures! -cs]

Dominique Strauss-Kahn, the managing director, said in February that  
the world was "already in Depression" and risked a slide into social  
disorder and military conflict unless political leaders resorted to  
massive stimulus.
He has not won everything he wanted. The spending plan was fudged.  
While Gordon Brown talked of $5 trillion in global stimulus by 2010,  
this is mostly made up of packages already under way.

But Mr Strauss-Kahn at least has resources fit for his own task. He  
will need them. The IMF is already bailing out Pakistan, Iceland,  
Latvia, Hungary, Ukraine, Belarus, Serbia, Bosnia and Romania. This  
week Mexico became the first G20 state to ask for help. It has  
secured a precautionary credit line of $47bn.

Gordon Brown said it took 15 years for the world to grasp the nettle  
after Great Crash in 1929. "This time I think people will agree that  
it has been different," he said.

President Barack Obama was less dramatic. "I think we did OK," he  
said. Bretton Woods in 1944 was a simpler affair. "Just Roosevelt and  
Churchill sitting in a room with a brandy, that's an easy  
negotiation, but that's not the world we live in."  [Hardly - 730  
delegates from all 44 Allied nations for 3 weeks during the war in  
1944 -cs]

There will be $250bn in trade finance to kick-start shipping after  
lenders cut back on Letters of Credit after September's heart attack  
in the banking system. Global trade volumes fell at annual rate of  
41pc from November to January, according to Holland's CPB institute –  
the steepest peacetime fall on record.

Euphoria swept emerging markets yesterday as the first reports of the  
IMF boost circulated. Investors now know that countries like Mexico  
can arrange a credit facility able to cope with major shocks – and do  
so on supportive terms, rather than the hair-shirt deflation policies  
of the old IMF. Fear is receding again.

The Russians had hoped their idea to develop SDRs as a full reserve  
currency to challenge the dollar would make its way on to the agenda,  
but at least they got a foot in the door.

There is now a world currency in waiting. In time, SDRs are likely  
(to) evolve into a parking place for the foreign holdings of central  
banks, led by the People's Bank of China. Beijing's moves this week  
to offer $95bn in yuan currency swaps to developing economies show  
how fast China aims to break dollar dependence.

French President Nicolas Sarkozy said the summit had achieved more  
than he ever thought possible, and praised Gordon Brown for pursuing  
the collective interest as host rather than defending "Anglo-Saxon"  
interests. This has a double-edged ring, for it suggests that Mr  
Brown may have traded pockets of the British financial industry to  
satisfy Franco-German demands. The creation of a Financial Stability  
Board looks like the first step towards a global financial regulator.  
The devil is in the details.

Hedge funds deemed "systemically important" will come under draconian  
restraints. How this is enforced will determine whether Mayfair's  
hedge-fund industry – 80pc of all European funds are there – will  
continue to flourish.

It seems that hedge funds have been designated for ritual sacrifice,  
even though they played no more than a cameo role in the genesis of  
this crisis. It was not they who took on extreme debt leverage: it  
was the banks – up to 30 times in the US and nearer 60 times for some  
in Europe that used off-books "conduits" to increase their bets. The  
market process itself is sorting this out in any case – brutally –  
forcing banks to wind down their leverage. The problem right now is  
that this is happening too fast.

But to the extent that this G20 accord makes it impossible for the  
"shadow banking" to resurrect itself in the next inevitable cycle of  
risk appetite, it may prevent another disaster of this kind.

The key phrase is "new rules aimed at avoiding excessive leverage and  
forcing banks to put more money aside during good times." This is  
more or less what the authorities agreed after the Depression.  
Complacency chipped away at the rules as the decades passed. It is  
the human condition, and we can't change that.
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