Imagine you’re the G20. This is a meeting of finance ministers. In general, I think we can say that the finance minister has a divided loyalty between the banking cartel and the State, whose interests are not perfectly aligned. The banking cartel derives its revenues from credit expansion, so it will seek to expand credit to the maximum degree possible. The State, however, derives its revenues from a large variety of sources, one of which is inflation by the banking cartel.
The major financial powers - France, Germany, Italy, Japan, United Kingdom, and United States, and Canada (G7) have, of course, more say yet different interests in the G20. I think it’s safe to say that these powers have more interests in common with each other than they have with the other members of the G20. Basically, they want to retain the role they have managed to create for themselves as the holders of reserve currencies (strong currencies) which are used to transact international commodities like oil and other things. This permits them to expand their currency without an equivalent loss of currency valuation. In other words, they have created a system of artificially high demand for their currencies. So, when they expand the supply of their currencies, they do not experience as much devaluation as less-demanded currencies do when their supply is expanded.
But emerging economies - BRIC - do not have the same interests. They never were in on the reserve currency scam so, while they too want to maintain central banks administering fiat currencies in their territories, they also want to insulate themselves from the exported inflation of the financial superpowers. This leads to a fundamental rift and this rift is probably the reason that the whole world-wide paper currency idea is getting no traction outside of the tiny, maniacal hyper-Keynesian camp in economic academia.
Since the economic crisis began in late 2008, another trend has emerged and that is the rising gold price. This is the “wildcard” in the whole affair. The rising gold price, to a large extent, represents exodus from all fiat currencies together. BRIC and G7 have in common a desire to keep business occurring in terms of fiat currency. The modern, global monetary regime makes it all but impossible to do business in gold, so wealth shifted out of fiat currency and into gold represents a belief that it is better to forego investment opportunities to find shelter from inflation than it is to bear the costs of inflation in order to have investment opportunities. This is generally true of all durable commodities (oil, metals, etc.) but gold is the symbol of all such anti-paper sentiment.
So, this is my question: Given that you are the G20 and you all want to keep people in paper money, but you can’t overcome the rift between BRIC and G7, how do you keep people from continuing to bail out of the paper money system? What’s next? What do you do? Do you try to manipulate the gold price? Do you turn to the IMF and use SDRs as a “currency basket” or do you turn to the BIS or WorldBank and use some as-yet-uninvented “bancor” with some fictional “commodity-peg”? Of course, self-preservation comes first but then, if everyone bails out of paper money altogether, you’re worse off than if you had accepted a G7-finagled reserve fiat money that permitted them to continue the financial colonialism they have been practicing since the close of WWII. What do you do?
Clayton -