Economics, Free PoM
The Dollar And World On Oct 2, 2016 (Freepom)
September 18, 2016
Internet Control Passes to the United Nations
By JC Collins
We are only 12 days away from the effective date of the new SDR. Coincidently this is also the date when the United Nations takes over control of the internet.
The US Administration has controlled the internet since its inception through the Internet Corporation for Assigned Names and Numbers (ICANN). This control will now be passing over to International Telecommunications Union (ITU) which is administrated by the UN.
Such a shift in control and influence is reflective of the transformation which is taking place in the international monetary system. Adjustments to the flow and control of capital has always been the predecessor to broader socioeconomic and geopolitical changes. The trends of today and tomorrow will also follow this undeniable logic.
For the last 72 years the United States has maintained a high level of global hegemony through the use of its domestic currency as the international reserve asset. Since 1944 the USD has accumulated in vast quantities in the foreign exchange reserve accounts of central banks around the world.
This has given the US government immense influence and control over nations and whole regions. New technologies, such as the internet, were managed and distributed by the US, and most geopolitical issues between nations were settled in a manner that considered the wants and needs of America and western corporations.
This is now all changing, and the world events which are unfolding in Eastern Europe, the Middle East, and South China Sea are a testament to the reality of this shifting influence.
The SDR (Special Drawing Right) is a basket of domestic currencies which is used by the International Monetary Fund to manage quota amounts and allocations of funds for member nations. The basket has went through various alternations since its inception in the late 1960’s. The current composition of the SDR includes the USD, British pound, Japanese yen, and euro.
On October 1st a new composition comes into effect which will include the Chinese renminbi. China’s domestic currency has been on an upward trajectory towards official reserve status amongst the G20 nations. This internationalization took on a new dimension after the financial crisis of 2008.
At that time it was recognized that the imbalances in the world monetary framework, much like the imbalances in the geopolitical realm, was caused by the large accumulation of USD in the foreign exchange reserve accounts.
The global community, through governments, central banks, international institutions, and think tanks, began to develop multilateral processes and mechanisms which would nudge the systems of the world from the unipolar American framework to an architecture which would effectively meet the wants and needs of the international realities.
For three years I have contested that the US dollar would not suffer a horrible death and collapse as some have repeatedly stated and promoted. The ebook I provided titled Re-Engineering the Dollar made the case that the US currency would be slowly altered and adjusted to fit within the multilateral framework and function in a more efficient capacity as a domestic currency, meeting the economic needs of the American people and business, which it has failed to do for decades.
Even the most hardened sceptics and promoters of the “death of the dollar” script are now admitting that the dollar will not die, and will in fact fit within a larger multilateral mechanism.
These adjustments will require some level of volatility as both SDR and renminbi liquidity increases internationally and USD liquidity decreases. The shifting sea of capital flows will require the normalization of monetary policy in all western nations which have utilized low interest rates and quantitative easing practices.
The Federal Reserve in the US has accomplished one interest rate increase so far and others are expected. Whether the second increase comes next week or not, the trend towards a multilateral framework is well defined. Each increase has to be timed and coordinated with China and the expansion of alternative liquidity measures to US Treasuries.
At some point in the near future China will further widen and extinguish its exchange rate pegging mechanism with the USD. Like interest rates, this will have to be coordinated and managed to minimize volatility and ensure capital flows do not adjust too swiftly.
What this all means for the dollar is that on the morning of October 2nd things will continue much as they have. No big news stories will break that morning stating that the dollar is crashing and the world is ending. It is only a point in time. The shift has already been happening for years and will continue to happen for many more.
At some point the dollar will depreciate against the currencies of its largest trading partners. It is important to understand that this depreciation will be beneficial to the dollar as it will help increase American exports and create jobs. All things which American’s have suffered under the reserve capacity of the dollar. – JC