And The Gold Bank Appears: following Fekete, China is embracing New Austrian Economics as the foundation for the new International Monetary System

You might already know that China aims for Official Gold Reserves at 8500 tonnes.

source

But you surely not know about the golden treasure embedded in the original opinion editorial by Song Xin, General Manager of the China National Gold Group Corporation, Party Secretary and President of the China Gold Association, 07/30/2014. 

He spoke about the strategic role of gold, and new institutions needed for gold circulation, precisely in the logic based on New Austrian Economics that I'm using in my articles on Conscience Sociale and elsewhere since 2011. [articles in english ; en français]. 

His sentences about the GOLD BANK is truly one of strong evidence of what I called the 'Grande Renaissance' which will transform the whole world in the following decades (another one is the growing interest in Agile Democracy).

Chosen excerpts of Xin's editorial [Translation by BullionStar], with emphasis mine :

"For China, the strategic mission of gold lies in the support of RMB internationalization, and so let China become a world economic power and make sure that the "China Dream" is realized. 

Gold is the only thing carrying the dual mantels of a commodity as well as a monetary substance. It's both a very 'honest' asset and forms the very material basis for modern fiat currencies. Historically, gold has played an irreplaceable role in responses to financial crises and wars as it comes to protecting a country's economic security. Because of this, gold carries with it an honored and divine-given strategic mission in the ascend of the Chinese people and the pursuit of the "China Dream".

The Important Function Of Gold.

Gold is the world's only monetary asset that has no counter party risk, and is the only cross-nation, cross-language, cross-ethnicity, cross-religion and cross-culture globally recognized monetary asset. Gold is the last protection for a country's economic security; it safeguards a nations sovereignty in times of crises. [...] 

From our country's point of view, gold has played an irreplaceable role in the development of our economic society.[...] After 1989, we suffered economic sanctions from Western countries for a while and the PBOC used our gold reserves to enter into swap agreements to obtain needed foreign currencies. Right now, gold is still serving its functions to protect against economic risks; contributing in ever more important ways to our financial security. For the moment, although in general the international scene is peaceful, conflicts can develop in certain regions. If there should be a blockade or regional war, there could be only one method of payment left: gold.

The strategic Mission Of Gold.

Since the 18th People Congress, general secretary Xi Jinping brought up the goal to revive our nation, to realize the "Chinese dream ". One important part of this dream is to have a strong economy. Though China is already the world's second largest economy, there is still a long way to go to become an economic powerhouse. The most critical part to this is that we don't have enough say in matters such as international finance and matters regarding the monetary system, the most obvious of which is the fact that the RMB hasn't fully internationalized.

Gold is a monetary asset that transcends national sovereignty, is very powerful to settle obligations when everything else fails, hence it's exactly the basis of a currency moving up in the international arena. When the British Pound and the USD became international currencies, their gold reserve as a share of total world gold reserves was 50% and 60% respectively; when the Euro was introduced, the combined gold reserves of the member countries was more than 10,000 tonnes, more than the US had. If the RMB wants to achieve international status, it must have popular acceptance and a stable value. To this end, other than having assurance from the issuing nation, it is very important to have enough gold as the foundation, raising the 'gold content' of the RMB. Therefore, to China, the meaning and mission of gold is to support the RMB to become an internationally accepted currency and make China an economic powerhouse.

In this view, our gold reserves are very low, both in terms of a nominal level as well as a percentage of official reserves. [...] The average of the world is about 10%, but for us it's only 1%.

That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

All-round, Multi-channel Increases In Gold Levels. Fulfill Our Part In Enabling Gold To Accomplish Its Strategic Mission.

How to achieve growth in our gold reserve? Apart from the PBOC directly buying in the open market, we should use also use the following strategies:

1. Relax gold import controls, grant large scale gold enterprises permits to import gold. In 2013, our gold consumption reached 1176.4 tonnes. Compared to the 426 tonnes of local production, there is a shortage of 750 tonnes. To meet this gap, we presently let the 12 commercial banks with gold-trading rights import standard gold ingots. But these banks lack the ability to refine and assay gold, they can only import standardized gold, missing the large amount of non-standardized gold and wasting the international resources that we could reach. By relaxing import controls, the large-scale gold companies can then obtain this gold and use their own technology to refine it into standard quality gold. This can help meet demand in the market, or turn gold into official reserves as required.

2. Establish a gold reserve building fund. This can be seeded using capital from the State Treasury, and open it for participation by private-sector capital in the public. It should be controlled by the State and used to target diverse off-shore gold resources, acquire mines and raw gold and in so doing, extend our reach beyond our borders and add a layer of opaque reserves to otherwise standard reserve numbers. 

3. Establish a Gold bank. We need to establish our gold bank as soon as possible, and enable it to break the barrier between the commodity and monetary world. It can further help us acquire reserves and give us more say and control in the gold market. It may be guided under the PBOC and led by the China Gold Association, involving leading gold industry companies and commercial banks, and it's business would include: gold pricing (fix), gold financing and leasing, gold-guaranteed payments, gold saving accounts, gold lending, gold production chain financing and issuance and trading of paper gold and other gold investments. This gold bank can then naturally use market-oriented methods to change commodity gold into monetary gold reserves, thus help us increase our strategic gold reserves."

And here they are, as we have anticipated: the Mint, the gold Clearing House, the Gold Bills, the Gold Bonds. Hats off, Pr. Fekete! 

Les bonnes idées ne meurent jamais. C'est même à çà qu'on les reconnaît.

_________________________

ps: Dear readers, with this reform of the IMS now on the right track, this was my last post on Conscience Sociale, which is put on hold. Thanks for your constancy and your always growing interest : more than 10,000 pages viewed each month, specially by education, research institutes, banks and ministers all over the world.

My last advice would be to read again from time to time the most important and unfinished page on this site.

À mesure qu'on avance dans la vie, on s'aperçoit que le courage le plus rare est celui de penser.

(F.A. Thibault, 'Anatole France', 1844 – 1924)

The golden age of our times is the age of gold

Towards a new international monetary system - Part 2.

[Ceci est la traduction en anglais de l'article original écrit en français]

We first established in January 2013 the need to resolve the problem of the international monetary system, and its absolute priority. [1] 

We then proposed in May 2013 a strategy to effectively prepare the necessary resilience to support the change in the international monetary system. [2] The various official announcements over the past months have largely confirmed that this anticipation was shared. [3] 

The synthesis of this strategy was again stressed by Laurence Brahm on 21/10/2013: 

" It is not the complete removal of the old Bretton Woods financial architecture but rather the creation of a new parallel structure to the old. Eventually, countries will be able to choose which architecture is better suited to their own plans for reconstruction and renovation. " [4] 

The Golden Age (Zucchi)

This week of March 2014 where I release this article sees an important step in international relations. It is nothing less than discussing the 2015 framework and choosing between the repetition of the Vienna Conference in 1815 (the Concert of Nations) or Yalta Conference in 1945 (the Cold War) that will support the “new rules of the game in international politics“. [5] 

In fact, this week in Europe a large number of high level bilateral meetings take place: 

·                     President Xi with the Prime Minister of the Netherlands, François Hollande, Angela Merkel then with the European Commission president [6] 

·                     President Obama with President Xi, and then he has extended his trip at the last minute to meet the Heads of State of the Netherlands, Italy, Belgium, UAE, South Korea, Japan, then a meeting with the Pope in Rome and a meeting with the King of Saudi Arabia. [7] Not to mention a planned meeting with Mr Barroso and Van Rompuy [8] 

·                     The G7 meeting on the sidelines of the Nuclear Security Summit in 2014 

·                     And other bilateral meetings, more or less official and prepared, among other heads of state following their presence at the Nuclear Security Summit 2014.

Officially the goal is mostly to talk about the crisis in Ukraine and Crimea, or to sign some contracts. The public communiques will mention them. 

We believe that other issues, much more important but related, will be discussed : those around the current reorganization of the new international monetary and financial system. [8.1]

Marketable U.S. Treasuries held by the Fed in custody for Foreign Official and International Accounts; till 3/26/2014; 

(Sources: St Louis Fed, Conscience-Sociale.org)

Our analysis is that the Ukrainian crisis was triggered by the U.S. deep state in preparation for the introduction of this next reorganization. [9] This is to retain the EU in the area of U.S. domination. [9.1] 

The time has come to clarify what we mean by new international monetary and financial system. 

We believe this is not only about launching what is already announced: 

·                     A Development Bank for BRICS parallel to the World Bank 

·                     A BRICS stabilization fund parallel to the IMF 

·                     New bilateral trade agreements parallel to the WTO 

but to go much further. 

Firstly, BRICS Development Bank is becoming a "Bank initiated by BRICS for the development of all interested parties" and whose governance is open to any state wishing to join with the framework agreement. [9.2] 

Secondly, and this is the most innovative part: it is to create another institution parallel to the Bank for International Settlements (BIS). 

This is the oldest international financial institution fully governed by the West (6 permanent members and founders are the central banks of Belgium, France, Germany, Italy, UK and USA, which can have a double voting weight - analogy with Obama's meetings this week is not a coincidence [10]) 

BIS is the central bank of central banks, that is to say, it organizes and manage trade between them ... especially those concerning physical gold. Activities related to financial regulation (the famous Basel Committee rules) were added much later, after the existence of the bank became public when it was kept secret since its inception. [10.7]

The first problem to solve for the overhaul of the international monetary and financial system is not really the choice of a new currency. This is only a means. This is primarily to ensure price stability and the development of international trade. Otherwise, the only alternative is endless war for resources that are increasingly scarce. It is therefore necessary to separate the problem of a reference currency for international trade, from that of a reserve currency for central banks.

Global geopolitical dislocation following the 2008 crisis has cut the Gordian knot: there is no need any more to make a decision for all countries (which has blocked reform for many years [10.6]). Now BRICS countries have the initiative and willingness to move forward. This will is the key factor as we wrote: [10.9]

The global geopolitical context is characterized primarily by a tilt after reaching the tipping point: the decline of the American empire on the one hand and the rise of the multipolar initiative led by BRICS on the other. Because they are so desperately lacking in autonomy of decision and willingness, the EU and Japan find themselves buffeted by this tidal wave of history. 

The choice is made for several years, international trade will be based on gold [10.3]. 

How will this happen in practice? Not with boats or trucks loaded with bullions, of course. As we said a "second BIS" was designed that can manage a clearing house for payments (settlements) in physical gold, especially to add to it a fundamental function to allow again international settlements for goods using "Real Bills" (a.k.a. Gold Bills), as recommended by the New Austrian School of Economics. In his work Professor Fekete described these Gold Bills as being “destined to be settled in gold coins that are made available after the ultimate consumer surrenders them in exchange for finished consumer goods upon maturity”. [10.4] Their issue is strictly limited by the orders received to buy goods. They allow increasing the money velocity without systematically using coins and without any risk of inflation. [10.1] 

This is far from a simple "100% gold" standard.

Gold is the only money (gold - silver ratio must float) as everyone knew for millennia. Today most people have more or less forgotten this unique role, but not Western central bankers who have tried for a century to put lipstick on a pig, so to speak. [10.8] By deceiving us, they deceived themselves and began to believe their own nonsense. A historical failure and on a global scale. Alas, alas, it is a failure of the European spirit. We need to recognize it in order to find the impetus beneath our feet allowing us to arise from the depth of this graveyard by the sea. [10.2] 

BRICS countries do not necessarily need the West to initiate this new settlement system. [10.5] It must be noted in this respect what it can supersede. The dollar currency and U.S. Treasury at the foundation of famous "petrodollars" are replaced by the Gold Bills that will allow buying oil for example. [11] It is the function of reference currency for international trade. 

But US Treasuries have a function of income related to their mid/long term interest rate too - it is also a fatal flaw in this system. This is the second problem: the choice of the reserve currency for central banks.

The new system offers very smartly to decouple these two functions. The income function can be brought (at appropriate time) by introducing gold bonds, that is to say bonds denominated in gold weight, with interests denominated in gold weight and whose principal is redeemable in gold weight (ie not merely an obligation backed by a collateral gold and denominated in fiat currency – a.k.a. gold backed bonds). Again, we must have an institution for the issuance of these bonds. 

Note that to start, it is not necessary to replace any national currency by gold coins. The gold bills will circulate in parallel of currencies, and user confidence in these currencies will be reflected in real time in the local price of that currency measured in mg of gold (that is to say, the inverse of the ‘price of gold’ measured in the currency, which is the usual vision that we have - a totally wrong perception because you can not measure the length of a bar with a rubber-band: you must take the opposite approach). Hence the fundamental importance of not having rigged gold markets as currently in New York and London. [12]

(Source: GoldSwitzerland.com)

Price of one U.S. dollar in mg of fine gold between 1968 and 3/24/2014

(Sources: St Louis Fed, LBMA, Conscience-Sociale.org )

The U.S. have no way to prevent BRICS countries to launch this parallel system, a competitor of the one based on U.S. Treasury bond, and which finally obliterate their attraction.  

The only remaining choice as new rules for American decision-makers (that is to say, the public state and the deep state) are the following, as they are standing with their back to the wall [12.2]: 

·                     either to accept an open cohabitation  of two parallel systems, with 100% of the players who know that the dollar system can not be competitive (very quickly one system will endure and all U.S. Treasury assets going up in smoke). Modestly this is called "asset restructuring in U.S. bonds market." This is the path of Vienna in 1815. [12.1] 

·                     or not to accept this open cohabitation, that is to say close the door to hide behind and build a wall as high as possible so that no one can escape from the dollar zone. For this area can last as long as possible (while being doomed because of deflation), it must be the largest possible, and the EU is a tempting (with its remaining gold reserves) and very easy prey thanks to Atlantist governments and European Commission who are obediently following the interests of the American deep state. The strategy is therefore to make them sign the TTIP as soon as possible, which quickly convince them not repatriate their gold and abandon the euro (two currencies for the US-EU area only, is one too many) as they have already abandoned their sovereignty. This is the way of Yalta in 1945. [12.3] 

The next time you meet your President or Prime Minister, you now know which good question to ask him: what did he choose for us and that is supposed to commit all?
BRICS countries are reaching out to European peoples since 2009, and our governments show their disdain so far, preferring the shadows of the world before. [13] But it is not too late to think about our place in Europe and in the world, it remains few short months and the ticket can be taken since this week. Hurry up or repent. 

What is currently discussed off-line is however everybody's concern, and will commit us for a long time to come. Do not suffer without understanding.

An error doesn't become a mistake until you refuse to correct it.

(O.A. Battista, 1917-1995)

_______________________

[1] ‘La crise écologique globale exige une refonte du système monétaire international’, Conscience Sociale, 01/2013 ; This article was itself in the continuity of the fundamental question raised in 2011: 'How to replace the world trade reference currency', Conscience Sociale, 06/2011 

[2] a) 'Towards a new international monetary system - part 1', EN or FR version, Conscience Sociale, 2013 ; b) The first mention of this strategy can be found in the conclusion of 'La géoéconomie des Bons du Trésor US', Conscience Sociale , 12/2012 

[3] a) ‘China, Europe Agree on Currency Deal’, TheTrumpet.com ; b) ‘China's planned crude oil futures may be priced in yuan’, Reuters ; c) ‘India to resume paying Iran in Euros’, India Times ; d) ‘PBOC Says No Longer in China’s Interest to Increase Reserves’, Bloomberg ; e) ‘China’s central government has reportedly approved 12 new free trade zones, including ones in Tianjin and Guangdong’, The Diplomat ; f) ‘Harbinger: 23 countries begin setting up swap lines to bypass dollar’, The Examiner ; g) ‘FMI: La réforme de l'institution reste bloquée par Washington’, Les Echos ; h) ‘Dollar-based system is inherently unstable - The culprit is the dollar’, Financial Times ; i) ‘A Shanghaï, Pékin s'offre un laboratoire des réformes’, Le Monde ; j) ‘La banque de développement et le FMI des BRICS sont nés’, L’Express ; k) ‘Shanghai Free-trade Zone to lead on yuan reform’, South China Morning Post ; l) ‘IMF Quota and Governance Reform: Political Impulse Needed for Progress on Reform Process’, CIGI ; m) ‘South Korea, Australia ink US$ 4.5 billion currency swap agreement’, Sovereign Wealth Fund Institute ; n) ‘BRICS Bank: Caution is a good policy’, India&Russia Report ; o) ‘G20 regrets IMF reforms delay, India says can't wait for long’, Industan Times ; p) ‘Медведев: особую экономическую зону в Крыму будет курировать Козак’, RBC Daily ; q) ‘Gold trading to open up to foreigners in Shanghai’, SCMP, 03/2014; r) 'Russia without dollar - what are the risks?', pravda.ru, 03/2014 

[4] a) 'Les Brics veulent en finir avec l’extrémisme des marchés financiers’, RIA Novosti ; b) original article: 'БРИКС положит конец рыночному фундаментализму' RBC Daily

[5] a) R. Cohen, ‘International Politics: The Rules of the Game’, Longman Group United Kingdom, 1982 ; b) China's President Xi hence said this week: "China is firmly committed to ... building a new model of major country relations", Reuters, 03/2014 

[6] Le Parisien, 03/2014 

[7] The Guardian, 03/2014 

[8] European Council, 24/03/2014 

[8.1] For instance we should not ignore: a) 'Did Russia Just Move Its Treasury Holdings Offshore?', WSJ, 03/2014 ; b) 'Emerging Markets central banks sell US government bonds', Financial Times, 03/2014 

[9] a) ‘La crise ukrainienne, un événement de la politique profonde’, Conscience Sociale, 03/2014; b) For the exact definition of deep state see 'La politique profonde et l’Etat profond (deep deep politics and the State), Conscience Sociale, 03/2014 

[9.1] ‘Global systemic crisis-escalation in the US reaction for survival: trigger a cold war to make it easier to annex Europe’, Global Europe Anticipation Bulletin n°83, 03/2014 

[9.2] 'The Way Forward for the Brics New Development Bank ', All Africa , 03/2014 

[10] Obama and Cameron prepared this meeting last week: whitehouse.gov , 03/2014 

[10.1] Real Bills maturity is 91 days maximum. 

[10.2] 'La Crise de l’Esprit Européen' and 'La conjecture de Valéry, de Paul à Paul', Conscience Sociale, 02/2014 

[10.3] 'Building a strong economic and financial security barrier for China - Actively build and implement national gold strategies', In Gold We Trust, 09/2013 

[10.4] a) For more details, you can read his recent announcement ‘Gold Bills Payable in Gold Sovereigns' AE Fekete, 03/2014 ; b) On the distinction between Gold Bills and Real Bills: ‘Interview with Prof. Fekete’, Daily Bell, 03/2014 

[10.5] The group formed by the BRICS is already sufficiently autonomous: 'Sanctions effect: Russia to change its Economic Partners... for the better', Russia Today , 03/2014 

[10.6] 'U.S. Dollar, Euro, Renminbi as invoicing currencies in international trade and as reserve currencies - A bibliography', Conscience Sociale

[10.7] Founded in 1930, its existence was publicly unveiled in 1977. Note also that according to the by-laws the small territory of the BIS building is not subject to Swiss law. Police or army can not have access. See also 'Tower of Basel: The Shadowy History of the Secret That Runs the World Bank', Adam LeBor , PublicAffairs, 2013 

[10.8] 'Bernanke Tells Congress: I Don’t Really Understand Gold' , Forbes , 07/2013; But they recognized themselves be burnt out: see Conscience Sociale, 08/2013 

[10.9] 'Focus' chapter in Global Europe Anticipation Bulletin No. 83, 03/2014 

[11] It should be noted in this respect that the BRICS countries have learn from the experience of purchases by India of Iranian oil using gold, through Turkish banks. This is a case of an unjust embargo imposed by the West proved to be a weakness that would lead to huge consequences. History is fond of this kind of irony. See a) WSJ , 02/2014 ; b) Foreign Policy , 02/2014 

[12] a) 'Sun Zhaoxue: The United States Intends To Suppress Gold To Ensure The Dollar’s Dominance', In Gold We Trust, 01/2014 ; b) The origin of this strategy date back to distant times. See for instance: 'Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting, Washington, April 25, 1974', in FOREIGN RELATIONS OF THE UNITED STATES, 1973–1976, VOLUME XXXI, FOREIGN ECONOMIC POLICY, DOCUMENT 63 ; c) 'La Manipulation du Prix de l’Or', 24hgold, 09/2008 ; d) 'Barclays, Deutsche Bank Accused of Gold Fix Manipulation', Bloomberg, 03/2014 

[12.1] 'What the world needs is 19th century behavior', Russia in Global Affairs, 03/2014 

[12.2] 'L'implosion du marché COMEX et la dé-américanisation du monde’, Conscience Sociale, 10/2013 

[12.3] 'L'Union européenne: la nouvelle URSS', Vladimir Bukovsky

[13] ‘La dérive néo-conservatrice de la politique française’, Agile Democracy , 03/2014

Cover up that MINT, which I can’t endure to look on

 The BRICS are a very concrete and current example that the economy is actually only a facet or a mask artificially stuck on politics. The rhetoric that carries each of them is however built on the opposite. Let’s summarize the approaches and see how and why the acronym MINT (Mexico Indonesia Nigeria Turkey) is trying to emerge today, together with BRICS bashing.

An economist looks in the rear mirror (that is to say in the past) at quantifiable results from “economic actors” therefore reduced to a brief quantification, then sets up what he deems to be a representative image of some salient aspects and uses elements of a doxai so that he can draw his conclusions on the assessment of the moment. If he dares then to talk about the future, it is in order to point out the economic policies which should according to him be deployed as a consequence of this assessment, and of the principles arising from his doxai.

[...]

You can read the full article on Euro-BRICS web site.

Who could protect JPMorgan bankers and owners?

The endgame is unfolding, as all the persons interested in the gold market now know.

The return of gold as the central asset in the coming new international monetary system is certain.

We have already proposed a method in order to anticipate the next big move.

The current powers are massively accumulating gold, benefiting or causing gold price suppression. We can observe very different strategies among them:

• BRICS countries, and China in particular, are adding gold into their official monetary reserves but also are officially and strongly encouraging their people to buy and own gold (and see here: even if a simple gold-backed yuan is not the solution to successfully reform the international monetary system, this report is a point in favor of the strongest interest in gold from BRICS governments)
• The U.S. and U.K. countries (central banks, bullion banks) are publicly discouraging the people to own or buy gold and Bernanke couldn't even remember the reason why the Fed managed gold reserves; but since 2008 and much more since last year JPMorgan has built a strong position in the gold market (as a bullion bank), and is accumulating it at high volume
• Euroland countries are in a middle position: not publicly advocating gold, not discouraging it; but ECB and european central banks are buying it again, and/or stopped gold leasing (and see here)

You might ask what will happen after the next big move: the new monetary power will be shared between the main gold owners, according to their stocks or geopolitical alliance, and BIS status will be redefined; yes, but then?

I'm wondering what could happen then in the U.S., a state where this next big move will inevitably signal a new era to the society currently in such a difficult and politically dangerous position. Wall Street's Banks' gold will attract the american people's attention, desire and violence.

The best solution for the US people would be to open the Mint and to rebuild a new gold system based on the New Austrian School of Economics' detailed recommendations. But don't hold your breath: this would mean for the US bankers to share power with the people, and they are not individuals of this kind. They will not give this gift unless a new state is proclaimed because they are scared of losing their favoured position. Remember: gold means liberty.

The remaining solution would then be to augment the fascist trends, i.e. to make even closer JPMorgan (and the TBTF banks) and the police state, in deploying a permanent and official protection by the state for these bankers and/or by allowing them to create their own militia.

But we could also think further: JPMorgan could officially merge with the state, to emerge from the deep state and to become a visible part of the new state. Mainly, it could replace or merge with the US Treasury, whose (remaining) gold is currently managed by the Fed. 

The protection of the previous private bankers, then civil servants of the state, and of the newly joint gold reserve would be obviously required, but more easily claimed as a 'usual' protection by the state against the ruled ones.

Towards a resilient international monetary system (part 1)

[This is the English translation of the original article published in French.
Part 2 of this serie is available here: The golden age of our times is the age of gold]

Foreword:

The crisis of legitimacy faced by the institutions of the global governance system set up after 1945 is resulting in the collapse of the old framework of international cooperation, with apparently nothing ready to replace it, besides a myriad of more or less successful regional integration projects. The supra-national regional entities that are currently being forged, created in a context of increasing emergency, are indeed the building blocks of tomorrow’s multipolar world. These integration processes are certainly a necessary step, but without a new "global" governance framework, capable of harmoniously combining these new components, conflicts of interest will soon oppose them and will quickly lead the world into the logic that prevailed in Europe in the late nineteenth century and the first half of the twentieth century.

Today everyone can see these tensions mounting between blocks on the themes of access to commodities, trade, currencies,.. putting high pressure on the fragile world peace and endangering the impressive development of emerging powers and the long period of prosperity of Western powers.

The next G20 to be held in Saint Petersburg in September is the next opportunity that the world gives itself to find solutions to the growing difficulties facing its equilibrium. But time is running out...

The Euro-BRICS strategic alliance :

For three years now and based on three seminars already, LEAP and MGIMO have been advocating a Euro-BRICS strategic alliance wishes to enable:

• Europe to turn more resolutely towards the future dynamics that the BRICS bring
• the BRICS to find the allies they need to achieve a more balanced global governance system.

In this double simultaneous development, the whole world has everything to gain.

The last seminar of the Euro-BRICS research network was held in Moscow on 23 and 24 May 2013 and addressed several major issues that the dynamics of Euro-BRICS relations could bring solutions upon, which include monetary and trade issues.

My presentation was titled "Towards a resilient international monetary system to systemic crises". I presented a strategic overview of the first part of my thoughts on the evolution of the international monetary system, which concerns the short-term. When reading its content (full text below) it may yet seem too much avant-garde or even wacky. This is not the case as demonstrated by recent announcements: first the announcement last July of the use of Qianhai special region for the purpose of innovation in financial flows. And second: in June 2013, the Asian Development Bank, the Centre for International Governance Innovation and the Hong Kong Institute for Monetary Research published a study entitled "A Practical Approach To International Monetary System Reform: Building Infrastructure For Settlement Regional Currencies" (originally presented in a conference December 2012 in Hong-Kong) and exactly aligned with the strategy that I have described.

Bruno Paul, 08/27/2013.

---

Towards a resilient international monetary system to systemic crises

Back in April 2010, the World Bank member countries agreed to change its severely criticized governance. This text has never been ratified by the U.S. Congress. 

On 03/26/2013 the BRICS countries announced the opening in 2014 of their own development bank, a fund with more than 100 billion USD, which will be able to substitute to the World Bank when appropriate. 

In response to the question I asked last 04/19/2013 at the conference #futureecon organized by the IMF, about the possibility of creating a second IMF by the BRICS countries, the IMF Deputy General Manager M. Min Zhu worried about this eventuality, and the question is no longer taboo. We need to remember that the world has witnessed the use of two simultaneously dominant reserve currencies during the interwar period. The U.S. dollar and British pound were used in almost equal parts, each with their own geographic area of influence.[5] To continue only to forecast a single international monetary system and a single reserve currency is therefore probably a reflex or an intellectual habit. 

IMF has announced a commitment to a review of quotas by January 2014, a proposition championed by BRIC countries since 2008. [1] 

From the conclusions of their last April and May meetings, G20-Finance, the World Bank, the IMF and the IFMC helped to highlight the strong convergence of international debate and a consensus on three key principles: structural reforms that will manage debt on a sustainable path, deficit reduction over the medium term and reduction of global macroeconomic imbalances. It is explicitly stated the need to restore the resilience of the international economic system. 

The IFMC press release specifically indicates a commitment to refrain from competitive devaluations.[6] 

We can then define two groups of countries: those who actually enroll in this consensus, and those for whom it is only words since the beginning of the crisis. Factual analysis of the evolution of macroeconomic indicators since 2008 allows us to isolate in one group: the U.S., Japan, and the United Kingdom, and in another group: all others G20 countries. For instance, efforts towards a fiscal convergence within the eurozone are particularly remarkable. The integrated economic government of Euroland, with a president appointed at its head who would be responsible for a tax harmonization among the member countries and to extend the plan against tax evasion is growing each day a little bit more, these days by the official voice of François Hollande who so wishes to occur before 2015. 

On the other group, without having to officially using the terms of "competitive devaluation" the weapon of extraordinary monetary policies has already allowed the yen to lose continuously 25% of its value against the dollar, the euro, and the yuan since October 2012. Analysts announce the continuation of this trend throughout 2013.

Therefore what struck us is the failure of the IMF strategic mission of financial supervision, whose official statements endorse the practices of countries that do not play the multilateral game.

This has already pushed the BRICS countries to develop a common strategy for the reform of the international monetary system. [4] To my mind it is shared by the political leaders in the Euroland and fully in the logic of closer Euro-BRICS relations. Let’s list the the big milestones of this multilateral strategy for the reform:

• Reform and entry into force of new quotas and voting rights in the IMF, with an improving weight for countries like the BRICS;
• Reform of the basket of currencies defining the SDR currency (with gold gram);
• Development of a very deep and liquid market for international trade based on the new SDR
• Slow rebalancing of global macroeconomic imbalances in the medium term, is to say 20 years minimum

 The unprecedented political movement created by the creation of a new BRICS development bank, far from appearing as a simple duplication, can be also useful to stimulate diplomatically the progress of this multilateral strategy.

The key question then becomes, in my opinion: is the necessary delay to ensure the success of this strategy allowed? As stated in the introduction of our seminar: "time is running out." We recently published in the Magazine of Political Anticipation an analysis of U.S. foreign and domestic policies going back over a century, and we showed that the policy of military Keynesianism at work in this country led to a strong erosion of democracy, today already at a level where we can anticipate that a significant portion of U.S. citizens in a few years will be forced to follow the path of an open struggle against their federal government. To the international pressure will follow for the U.S. government a rapidly growing domestic pressure.[7]

Moreover, the unveiling role of the world systemic crisis has occurred:

- First, in the recent and anticipated dramatic shifts in the gold market which revealed the price manipulation through short sales contracts on the COMEX in New York, followed by withdrawal of almost all of the eligible physical gold stocks stored by JPMorgan Chase , one of six bullion banks sharing the gold storage and physical delivery for COMEX futures market. 

Source: ZeroHedge

In two days, 400 t of gold disappeared from the bullion banks [3]. At the same time appears the loss of correlation between the official quotation of gold (that is to say, gold paper quotation) and the physical gold which is now accessible only through the addition of a premium which greatly increased , and is highly dependent on local supply. And finally we need to point out the historical record for physical gold imports by Asian countries in the first quarter, including 300 t for China. 

Source : ZeroHedge

- Second, the disclosure is evident in the growing number of leaked lists of thousands of owners of bank accounts in tax havens since 2007 (beginning with the Lichtenstein then Switzerland [2]), in the investigations that the States including those of the Anglo-Saxon pole are forced to conduct, and finally in the growing regulation of automatic data exchanges from tax havens banks to the fiscal administration in the state of residence.

These unveilings are major factors accelerating the global systemic crisis, in its current phase.

It seems to me therefore essential not to abandon the multilateral strategy to reform the international monetary system, but to quickly add to it another initiative from the Euro-BRICS group. This second initiative draws on the logic currently at work of global geopolitical dislocation, and I call it “Multipolar Strategic Initiative for Resilience”. Its purpose is to minimize the effects of currency war, and to complement the use of the many new bilateral swaps.

Our proposition is to develop or create Special Administrative Regions for each country of the Euro-BRICS group. These regions would be dedicated to flows of goods traded by each country of the Euro-BRICS with the United States and Japan, like the existing status for Hong Kong or Macau. The inclusion of the UK in this list of special trade partners could be studied as well, but the process is made much longer and uncertain for the euro zone because of the current European treaties. Possible future voluntary exit from the European Union by the UK would call for study its inclusion in this list.

Euro-BRICS countries would not make any more invoicing or payments for goods selling directly with the United States and Japan. Note that we consider for the moment only flows of physical goods, that is to say, the greater part of the real economy. Import/export flows and re-invoicing would be operated only using transhipment through the Special Administrative Regions (SAR). The idea would be to use in these regions a different currency than the one commonly used in Euro-BRICS countries, in the same way that the Hong-Kong dollar is not the same currency than the yuan or renminbi.  Current currencies would remain convertible on the market. These Special Administrative Regions would concentrate the risk of trading with countries with great variations in currency exchange rates. Euro-BRICS countries would be able to regulate at will the rate of exchange between their own currency and the one in force in their own SAR. These SAR would be developed or created around major ports currently used for trade with the USA and Japan. Registering not strictly necessary financial activities (private funds ...) in these SAR will be discouraged.

Trade between the Euro-BRICS countries should not be affected by the development of the RAS, and if possible do not pass through them. These areas should be used only to build a “firewall” (like when protecting IT networks) for trade with countries whose observed policies have proven their unwillingness to respect the required governance for an effective multilateral trade dialogue.

However, it is desirable that the Euro-BRICS countries strengthen their abandonment of the dollar as their international invoicing currency for trade between them, including for oil products. The existing agreements should be amended accordingly.

The Multipolar Strategic Initiative for Resilience is very flexible. Each country can progress at its own pace in this direction, respecting the new cooperative logic of global governance summarized by the expression of Evgenia Obitchkina: “the multipolarity alongside the diversity." [8]

The main advantage of such a "string of pearls" of RAS that would interface with the United States and Japan, in addition to reducing the currency risk thanks to the strict control of the exchange rate with the SAR and to the billing terms that can be optimized, lies in the resilience of the international trade system in case of default of major financial institutions in the United States or Japan. For Euro-BRICS countries, financial defeasance structures (Special Purpose Vehicles…) would be registered in the RAS and systemic risk would be more contained without jeopardizing businesses and public debts of the Euro-BRICS countries.

Finally this initiative can be simply summarized: it is to organize and regulate the interface between the dollar-yen area and the rest of the world. The trade and economic size of the Euro-BRICS countries is sufficient to initiate the successful containment of the systemic risk.

In a second step, one could think about control of capital flows between the Euro-BRICS countries and U.S. / Japan, but it seems to me less of a priority and can be developed independently. The Asian crisis of 97 and the euro crisis have already raised awareness of required significant exchange reserves or alternative mechanism to dampen currency crises or sudden withdrawal of capital by U.S. companies.

The world of tomorrow, but also visible prospects out of the current global crisis depends to a large extent on the qualities of the new international monetary system and first its stability. The Multipolar Strategic Initiative for Resilience is a new step towards a dual international monetary system resilient to global systemic crises. As Deng Xiaoping stated: "One World, a dual system" is the horizon to which we should move forward. And as said Richard Fuller, “to change something we need to build a new model that makes the existing model obsolete”. The mere mention of this possibility is already a carried weight argument to improve the effectiveness of the multilateral strategy. This new initiative is a potential source of true political influence for the Euro-BRICS and for a growing synergy by network effect.

Bruno Paul, 05/23/2013, Moscow.

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[1] Quotas Page, IMF; IMF fails to agree on new formula for vote reforms, Reuters, 01/2013; Reform of the IMF Executive Board, quotas: status update, SAFPI, 02/2013; Press release 10/418, IMF, 11/2010. 

[2] Shortly after the agreement with the French fiscal administration is an agreement reached between UBS Switzerland and the USA . 

[3] K. Weiner has since proposed a different explanation for this fact. It is seldom known and deserves to be mentioned. 

[4] M. Otero-Iglesias, M. Zhang, EU-China Collaboration in the Reform of the International Monetary System, RCIF Working Paper No. 2012W07, 04/2012; Mr. Otero-Iglesias, China, the Euro and the Reform of the International Monetary System , 10/2012 

[5] C. R. Schenk, The Retirement of Sterling as a Reserve Currency after 1945: Lessons for the US Dollar ?, Canadian Network for Economic History conference, 10/2009 ; B. Eichengreen, M. Flandreau, The rise and fall of the dollar, or when did the dollar replace sterling as the leading international currency?, NBER Working Paper 14154, 2008. 

[6] Statement by Secretary Jacob J. Lew at the International Monetary Financial Committee (IMFC) Meeting, 04/2013. 

[7] B. Paul, The inevitable counter-revolution of the American people, Magazine of Political Anticipation, n.8, 03/2013; See also the long version of this article in French. 

[8] E. Obitchkina, « From the diplomacy of states to that of networks: powers and areas of interest », 3rd Euro-BRICS seminar, Cannes, 09/2012.