Wednesday Night #1498

Written by  //  November 17, 2010  //  Wednesday Nights  //  2 Comments

Welcome to #3 of Wednesday Night 2.0.

Former IMF chief lays out plan for global monetary overhaul
(Emerging Markets) Leading French statesman and former IMF chief Michel Camdessus in an interview with Emerging Markets has called for a radical overhaul of the global monetary system that would include ditching the dollar as the leading international reserve currency
As France takes the helm of the Group of Twenty industrialized and developing economies, leading French statesman and former IMF chief Michel Camdessus has called for a radical overhaul of the global monetary system that would include ditching the dollar as the leading international reserve currency.

Hans Black wrote last week:

“One of the most important editorials of the year appeared earlier this week in the Financial Times of London written by none other than Robert Zoellick, President of the World Bank.  In his written essay, hardly a source from which any one can claim him to be misquoted, he mentions gold as a reference for future currency and value comparisons.
Having dropped this bombshell, he then backtracked a little bit in Singapore while talking to reporters, only to reassert once again that the international currency system needs a reference point to which to hold itself.  It will be seen how heated the debate will get this weekend in Korea as the G20 meeting gets underway.
Despite the protestations of many, we feel the cat is now effectively out of the bag and that after 20 years of trying to wean the world off thinking about a gold standard, culminating in governments such as the U.K. completely liquidating their position in early 2000 near $300 an ounce, we will now move higher over time to prices that I could not even mention here for fear of being derided.”

Market Watch wonders if a gold standard would destroy the Canadian dollar

How say you? Ron Meisels reminds us I spoke at WN about a return to the Gold Standard, ohhh, about a million years ago!

The G20 Summit does not appear to have accomplished much, however, one item that you might have missed relates to

Canadian non-profit wins G20 small business funding challenge
… The Ottawa-based non-profit invented the Factor Finance For Procurement (3FP) concept, which has helped local SMEs win donor procurement contracts in Haiti, Liberia, Timor Leste and Afghanistan, redirecting more than $537-million into local economies to date.

RCI reports that “Canada’s Prime Minister Stephen Harper says there’s no need for panic about the world economy after two economic summits in Asia failed to produce an agreement on exchange rates and trade imbalances. … In the absence of a consensus among leaders, the G20 delayed concrete measures and asked a panel led by Canada and India to draft guidelines on exchange rates and trade imbalances. [See good summary from the Economist, along with this priceless comment: “Manmohan Singh, who holds a doctorate in economics from Oxford University and also taught economics there, would probably be the best-qualified leader of a G20 country to run a seminar on exchange rates. But Mr Harper would doubtless make a good teaching assistant were Mr Singh to be unavailable.”]

As the Economist and others point out, the Fed’s earlier quantitative easing caused dissension among the G20 members and editorial comment is sharply divided. We look forward to hearing your opinions.

Niall Ferguson revisits his presentation on sovereign debt crises – if only economists and public policy wonks could express themselves as clearly as historians! [A propos, we had the pleasure of attending OWN historian Desmond Morton’s lecture on Afghanistan at the Atwater Library on the 11th – Des is the epitome of the totally comprehensible, concise and entertaining lecturer. Thus we are delighted that he is to be Honoured with a Governor General’s Award for Excellence in Teaching Canadian History and will receive the Pierre Berton Award, which recognizes excellence in popularizing history in the public.]

Read more: The ceremony at takes place at Rideau Hall, on Friday, November 19, 2010, at 10 a.m.]

Only in Ireland : Ireland’s fiscal meltdown is so frightening that the comedians looked worried and the economists made the best jokes at the Kilkenomics comedy and economic festival. However, the situation is not funny. Don’t panic, say the Irish – but Europe is getting nervous  European partners are urging the debt-stricken nation to seek immediate assistance from an international rescue fund to resolve its financial problems.

Amidst all the doom and gloom, we are sure that you are rejoicing in the news of Prince William’s engagement to Kate (no link necessary – try to find a media outlet where it is not top of the news). We would also like to call to your attention this wonderful initiative of the Opera Company of Philadelphia – Enjoy

And finally, something everyone needs to know:
World cultural traditions are tagged by UN for preservation
Some of the world’s most distinctive cultural traditions on Tuesday were listed by UNESCO as intangible elements of world heritage that should be protected from the effects of globalization. Among the traditions are French gastronomy, Spanish flamenco, the Argentine tango and Turkish oil wrestling. BBC (11/16) , Reuters (11/16) 

2 Comments on "Wednesday Night #1498"

  1. Antal (Tony) Deutsch November 17, 2010 at 8:30 am ·

    Just about half a century ago I was being interviewed for a job at the Bank of Canada. The highlight of the interview was the question you raise, at that time the brainchild of a Belgian-born Yale professor named Robert Triffin.
    The answer was, is, that the dollar will go, as once sterling went, when a suitable substitute becomes available. It continues to be nowhere in sight.
    I was offered the job, but decided to go and do a Ph.D. instead.

  2. Guy Stanley November 17, 2010 at 4:45 pm ·

    Could be the French presidential election is now underway? Reserve currency status gives the USG the ability to export its monetary policy without suffering the full consequences as there is always demand for the USD as the settler of global accounts. France has historically opposed the US$ role and in 1971 had accumulated a large stock of gold that De Gaulle imagined would help France qualify as a reserve currency country. Instead the world moved to floating rates after the US went off gold. Now after 50 years as the military and economic hegemon, which includes being the market of last resort–and thus running more or less permament trade deficits—the US is under attack for a relatively lax monetary policy…which puts the countries that have benefitted from the US$ overvaluation on edge. Could be the US might actually start running trade surpluses one day! The related issue is the US security role which injects billions of US$ into countries hosting bases abroad, including what used to be NATO’s central front–i.e Germany –plus the Pacific allies. This pool has been used for years by MNEs abroad and finds its way into balances of US$ held abroad–i.e. never returns to the US but represents additional claims on the US economy.
    The solution proposed in the article–basically another Bretton Woods–is easier to say than do. The basic Keynes proposal–rejected at the original Bretton Woods Conference in return for a US$ standard and fixed rates–would penalize chronic deficit and surplus countries alike. But Keynes was never a free trader, and was particularly dubious about open capital accounts and foreign investment: his preoccupation was ensuring full employment. The situation is made even more complex today by so-called “integrated” trade in which countries don’t actually “trade” in the sense of swapping one good for another but instead compete for different stages of production in global supply chains. This makes much of the bilateral trade data illusory in that it understates the activities of MNEs in host countries and overstates the value of bilateral trade. China’s overall trade surplus is quite small as it has a large trade deficit with countries to which it outsources manufacturing. About half the US trade deficit is created by exchanges in energy products and industrial inputs with US MNEs abroad–abroad because of the US extraterritorial tax on MNEs and an overvalued dollar. In stark terms, the choice is between (i) a global reserve currency that grows at about the same rate as the global economy and which forces consequences on both surplus and deficit countries=a gold standard which worked if you believe the legend but which never worked as well its proponents claim, plus stifled economic growth for a generation or two (1870-1912 or so) and (ii) a globally managed fiat currency controlled by a strong central bank and lender of last resort (the IMF?) which is able to reconcile country and global monetary risk into an optimal market clearing mechanism of some kind. Basically the same problem as achieving agreement on global warming — i.e. the Lake Woebegon problem of ensuring all the children are above average!

Comments are now closed for this article.