One of the outcomes of the London G-20 London Conference of April 2009 is that the world moves a step closer to a global currency, according to Ambrose Evans-Pritchard, the London Daily Telegraph columnist. His assertion is based on Point 19 of the communiqué issued by the G20 leaders:

      “We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity.”1.

       By supporting the Special Drawing Rights—the SDRs, “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.”1.

       As a matter of fact, world currency has long been the pipedream of financial capitalism, “which had [a] far reaching plan, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole,” according to Carrol Quigley, Bill Clinton’s mentor at Georgetown University.2. “The apex of the system was to be the Bank for International Settlement in Basel, Switzerland, a private bank owned and controlled by the world’s central banks, which were themselves private corporations.”2.

       Bank for International Settlements (BIS) is an organization of central banks, whose members are from U.S. Japan and Western European industrial states with “the firm belief that central banks should act independently of their governments,” and “politicians should not be trusted to decide the fate of the international system.”3.

        Accordingly, by controlling the quantities of money in circulation and interest rates, the BIS have “the ability to create a financial boom or bust in a country.”4. Indeed, the Basel Accord of 1988, which raised the bank capital requirement from 6% to 8%, burst the Japan’s banks as well as her economy.

        By the end of 1980s, Japan was the world largest creditor and regarded as the leading economic and banking power in the world, but her banks “were less well capitalized than other major international banks.”5. With less capital bases, Japanese banks were able to offer cheaper interest rates against their international competitors. As a result, they became the major players in industrial lending.

        With the full implementation of the Basel Accord of 1988 in January 1993, the Japanese banks were forced to cut back lending. This immediately resulted in recession in Japan, and the real estate sector was particularly hard hit, as the price of property fell by as much as 60 per cent. The bubble in real estate created bad loans in the Japanese banking system.6.

        Traditionally, the Japanese bankers tend to invest in the shares of the Japanese companies rather than lending, in order to maximize profit. Thus, the collapse of the Japanese stock market had a cascading effect on the lending capacity of the Japanese banks. “A downward spiral followed, ending with the total bankruptcy of the banks.”6. The Japanese banking system was on life support, courtesy of the Japanese government. “In effect the banking system was nationalized, but it was not called that, probably in order to avoid irritating American sentiment.” 6.

Ironically, “no country had supported the Reagan budget deficits and spending excesses during the 1980s more loyally and energetically than Washington’s former foe, Japan…As it appeared to Japanese eyes, Tokyo’s loyalty, and its generous purchases of U.S. Treasury debt, real estates assets, were rewarded at the beginning of the 1990s by one of the most devastating financial debacles in the world history. Many Japanese businessmen privately believed that this was the result of a deliberate Washington policy to undercut Japanese economic influence in the world.”7.

        However, the Basel Accord of 1988 not only affected an industrial country like Japan, but even adversely the life of Indian farmers. With the tightening of capital ratio as specified by the Basel Accord, the Indian banks were not able to grant loans to many Indian farmers and they ended up committing sucide.8.
        What is not surprising is that the Basel Accord became an instrument of IMF to impose conditions on the indebted nation for “escalating capital requirement, loan write-offs and liquidation, and restructuring through sell offs, layoffs, downsizing, cost-cutting and freeze on capital spending.”5.

         Similarly, in South Korea, “the bank was desperate to crank up its Bank for International Settlements (BIS) ratio to survive.” 9. Consequently, businesses were not able to obtain fresh loans to maintain their operations. This is especially significant at a time of global financial crisis, as it can only worsen the economic situation.9.

         Meanwhile, American international banks, having eliminated the major competitors from Japan, managed to escape the Basel Accord capital requirements by “separating the ‘risk’ of default from the loans and selling it off to investors, using a form of derivatives known as ‘credit default swaps’”5.

         By the 2000, the total “off-balance-sheet derivatives” in all the corporate banks in America was $51.7 trillion. This was backed by assets of $6.6 trillion and equity capital of $586 billion. Therefore, “a loss equivalent to just 1.1% of the total derivatives portfolio would be sufficient to wipe out the entire equity capital of the U.S. banking system.”12.

        By using derivatives, the international banks escape the Basel Accord by packaging and selling immediately all the loans. In this kind of maneuvers, the U.S. banks set up off-balanced sheet operation known as structured investments (SIVs), under which the banks raise huge sums of money through the issuance of commercial papers without creating additional liabilities in their balance sheet. SIVs borrow short-term securities at low rate and lend out long-term at high rates. They invested in collateralized mortgage obligations. For years, this has been a highly profitable operation for international banks, but it also provides fertile ground for speculations, as multi-trillions of dollars of this kind of securities appear on the off balance sheet of the international banks around the world. The other problems for SIVs are that the market is not regulated and there is no liquidity in the market place. As a result, the valuation of these kinds of securities can be difficult and the institutions can claim any value of the securities they hold. 10.

        Most ominously, the sub-prime mortgage crisis and the credit crunch that followed completely demolished the SIVs market and thereby ruined the balance sheets of the international banks. With the drying up of the commercial paper market, the SIVs not being able to roll over their short-term debt, were forced into liquidation. Liquidation of assets that has no liquidity in the market place will inevitably lead to default and bankruptcy. This delivered a decisive blow to the earnings as well as the balance sheets of many banks. It is not a surprise that Bank of America’s fourth-quarter 2007 earnings fell 95% due to SIV investments. In Britain Northern Rock was nationalized in August 2007 due to investments in SIVs.11.

       In addition to SIV investments, the balance sheet of the Western banks were further devastated with the introduction of the second set of rule as Basel II in November 2007, when the financial markets experienced a steady decline in the aftermath of the sub-prime mortgage crisis in the United States. The Basel II “required banks to adjust the value of their marketable securities (such as mortgage-backed securities) to ‘market price’ of the security. This is called mark to the market.”13. Overnight, the mighty U.S. international banks found themselves in the stage of insolvency and the U.S. financial market experienced an instant credit freeze.

       In response to the instant credit freeze in the U.S. financial market, the Bush administration and Federal Reserve opened the monetary floodgate by easing interest rate and a massive bank bailout. This was followed with the Obama administration’s $1 trillion toxic assets buy back and the $1.85 trillion budget deficit. The total U.S. government bailouts reached $12 trillion. Unfortunately, “the incredible U.S. fiscal and monetary expansion will tax the rest of the world heavily, a world that uses the dollar as a reserve currency. The U.S. government will extract a huge seignorage benefit for its currency as reserve asset. This will shift the cost of bankruptcy and bailouts to dollar holders. In case of a stampede out of the dollar, the real value of dollar holdings could simply evaporate in real terms.”14.

       This should cause great concern to China, as the country with the most foreign currency reserves and the number one creditor to the United States. Therefore it is rather puzzling that China in the G-20 London Conference would support a general allocation and activate the IMF’s power to create money and put a de facto world currency into play. This is especially significant given the horrendous past operating record of IMF in the developing countries. It was the IMF, which acted as both the policeman as well as a debt collector, together with the Bank for International Settlement have single handedly destroyed the economy of many countries in the world.

Yet it is not a big surprise as on March 23, 2009, it was reported that China’s central bank “proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.”15. As a matter of fact, China’s proposal was met with a positive response from the U.S. Treasury Secretary Timothy Geithner as he stated that “we’re actually quite open to that suggestion.”15.

       One wonders whether the Chinese proposal of the new international reserve currency would offer the United States, a nation in deep economic crisis and awash with a mountain of debt, an escape route out of the financial dire straits. Even years before the financial crisis, “the U.S. has already indicated that it can’t pay back its dollar debts and doesn’t intend to.”15. America once proposed that foreigners would exchange their dollar holding for an IMF credit, thereby disowning all her debts.15. This rather disturbing proposal initiated by China may unwittingly play into the hands of Washington, and the foreign currency reserves accumulated by China as a result of sweat and tears of hundreds of millions of hard working Chinese would come to naught.

        What is ominous to the people of the world is that world financial elites, the ones who cause the crisis, by taking advantage of the critical juncture in history to create the world currency, can thereby exert financial and monetary control over the world. Thus, “the proposed solutions to this crisis represent the manifestations and actualization of the ultimate generational goals of the global elite; and thus, represent the least favorable conditions for the vast majority of the world’s people.”16. This should not be acceptable to the Chinese people. 

Notes:

1. Evans-Pritchard Ambrose: “The G-20 moves the world a step closer to a global currency” April 7, 2009  The Telegraph
2. Liberty-Tree.Ca: “Quote from Carroll Quigley”
3. Epstein Edward Jay: “Ruling the World of Money”  November 1983 Harpers Magazine
4. Veon Joan: “The Bank for International Settlement Calls for Global Currency”  August 6, 2003  News with View
5. Brown Eleen: “The Tower of Basel, Secretive Plans for the Issuing of a Global Currency”  April 19, 2009  Global Research
6. Smithy: “Unraveling the Basal Capital Accord”  www.wizardsof money.org
7. Engdahl William E.: “A Century of War”  PP 225-226  Pluto Press 2004
8. Chandra N.: “Is Inclusive Growth Feasible in Neo-liberal India?”  September 2008  Networkideas
9. Kim Tae-gyu: “BIS Calls Trigger Vicious Cycle”  December 14, 2008  Korea Times
10. www.market bust.com: “What’s a Siv and Should you care?”  October 22, 2007
11. Wikpidedia: “ Structured Investment Vehicle:”
12. Hoefle John: “Lesson of the Enron Debacle”  February15, 2001 Executive Intelligence Review
13. Wiseman Bruce: “The Financial Crisis. A Look Behind the Wizard’s Curtain”  March 19, 2009 Canada Free Press
14. Askari Hossein: “IMF lost on the high seas”  April 27 Asia Times Online
15. Shaeffer Standard: “Duck, Duck, Goose, Financing the War, Financing the World”  April 23, 2003  www.counterpunch.com
16. Marshall Andrew G.: “The Financial New World Order;Twoards a Global Currency and World Government”  April 6, 2009  Global Research