European Union (EU) energy commissioner Andris Piebalgs to propose on Tuesday 24 June 2008 to OPEC to price oil in Honest Money?

In my 11 April 2008 “OPEC and oil speculation”-post (1),
I asked why it is that OPEC cannot stop arguing that speculation is the cause of the present level oil prices
and I wondered whether the US dollar and the imminent pricing of oil in Honest Money could be
be the answer.

My argument, borrowed from Dr Walter Block, was that in normal times, the effect of the speculator on oil prices is to level them off. In normal times of plenty, when oil prices are low, the speculator by buying up and storing oil causes them to rise. In normal times of lack of oil, when oil prices are high, the speculator sells and causes prices to fall. The effect on him is to earn profits. This is not villainous; on the contrary, the speculator performs a valuable service.

Two articles published in the Sunday 22 June 2008 online editions of Arab News Newspaper outline what OPEC means by speculation. The articles also outline why these are not normal times (of lack/plenty of oil).

In an article under the title “Time for OPEC to defend its rights”, Fawaz Al-Alamy argues that
as oil prices are pegged to the dollar, speculators realised that the actual price of crude is not really high compared to its nominal fixed market price. Therefore, purchasing oil becomes tempting in the eyes of investors transacting in other currencies such as the euro, yen and pound sterling. Instead of speculating with the dollar, investors alternatively speculate in dollar-denominated commodities, such as oil and gold. Hence, oil prices keep soaring, while the dollar continues sliding. (2)

Arab News also argues in its “Drive out speculators”-article that
it is not OPEC members nor other oil producers who are to blame for the present wholly unjustifiable sky-high prices. Consumers must look nearer home. The problem started with investors in the main financial centres — New York, London, Frankfurt, Tokyo, Hong Kong and the others — as they searched for an alternative to the sinking dollar and began moving into oil. Prices started to rise. (3)

Both articles thus seem to recognise that the dollar is indeed the cause of the speculation in oil prices.

On the same Sunday 22 June 2008, Al Jazeera quoted OPEC President Chakib Khelil as saying “We believe speculation, in its noble and not noble terms, has its impact [...]” (4)

I submit that speculation in its noble terms is speculation that oil is soon to be priced in Honest Money.

On this Monday 23 June 2008, the Financial Times is saying in its weekly World Diary, “The Week Ahead”, that following Sunday’s extraordinary summit in Jeddah, Saudi Arabia, the EU’s energy commissioner Andris Piebalgs hosts the fifth round of ministerial talks between the EU and members of the oil producers’ cartel in Brussels. (5)

Piebalgs was quoted this Monday morning. 23 June 2008, as having said on Sunday in Jeddah that we are facing a unique situation, and that we should see this as an opportunity to work together, and to set a PRECEDENT for the future. Piebalgs went on to suggest a clear objective, that all can understand, for such a partnership. This may be, for example, a joint commitment to take the necessary steps with the aim of bringing oil prices to a more reasonable level, in the order for example of a TWO-DIGIT FIGURE PER BARREL, and to stabilise it at such levels for a reasonable period. (6)

It’s interesting that Piebalgs does not mention the currency in which the barrel would have a two-digit price.

What kind of precedent will Piebalgs and OPEC set on Tuesday 24 June 2008?

Ivo Cerckel
ivocerckel AT siquijor DOT ws

ENDNOTES

(1)
OPEC and Oil Speculation
April 11th, 2008 by Ivo Cerckel

http://bphouse.com/honest_money/2008/04/11/opec-and-oil-speculation/

(2)
Time for OPEC to defend its rights
Fawaz Al-Alamy
Sunday 22 June 2008 (17 Jumada al-Thani 1429)

http://www.arabnews.com/?page=7&section=0&article=111106&d=22&m=6&y=2008

SNIP
As oil prices are pegged to the dollar, speculators realized that the actual price of crude is not really high compared to its nominal fixed market price. Therefore, purchasing oil becomes tempting in the eyes of investors transacting in other currencies such as the euro, yen and pound sterling. Instead of speculating with the dollar, investors alternatively speculate in dollar-denominated commodities, such as oil and gold. Hence, oil prices keep soaring, while the dollar continues sliding.

(3)
Sunday 22 June 2008 (17 Jumada al-Thani 1429)
Drive out speculators

http://www.arabnews.com/?page=7&section=0&article=111107&d=22&m=6&y=2008

SNIP
It is not OPEC members nor other oil producers who are to blame for the present wholly unjustifiable sky-high prices. Consumers must look nearer home. The problem started with investors in the main financial centers — New York, London, Frankfurt, Tokyo, Hong Kong and the others — as they searched for an alternative to the sinking dollar and began moving into oil. Prices started to rise. But then the hike took on a life of its own; speculators moved in, seeing rich pickings to be had and the wherewithal in terms of the massive sums at their disposal to push prices even further up. Now they drive the market — and they have driven it way beyond what it should be. Supply exceeds demand — yet still the speculators buy, convinced that future demand from China, India and other rapidly industrializing economies will be so great as to absorb any present excess held in inventories and to demand even more. The fact that they have not the faintest idea what consumption will be in a year’s time, let alone five, is wholly ignored. The attitude of the consumer governments until now has been that market forces can stabilize the situation, that all that is required is a substantial increase in production; hence President Bush’s request to the Kingdom to increase oil production and to the US Congress to allow drilling in Alaska and offshore.

(4)
‘Speculators’ blamed for oil rise

http://english.aljazeera.net/news/middleeast/2008/06/200862211543806807.html

SNIP
Khelil also said that Opec had decided no special meeting on production was needed now and that a decision would be made at a regular Opec meeting in September.
“We believe speculation, in its noble and not noble terms, has its impact,” Khelil said.
Khelil said much of the rising costs can be explained by currency market turbulence.
“A lot of people are talking about the uncertainties about the reserves. But what about the uncertainties on the dollar?” he said

(5)
FT – The Week Ahead
World Diary: June 23 – 29
Compiled by Dominic Swords
Last updated June 22 2008

http://www.ft.com/world/weekahead

SNIP
JUNE 24
EU-Opec energy dialogue
Following Sunday’s extraordinary summit in Saudi Arabia, the EU’s energy commissioner Andris Piebalgs hosts the fifth round of ministerial talks between the EU and members of the oil producers’ cartel in Brussels.

(6)
EU Energy Commissioner At Jeddah Energy Meeting
Monday, 23 June 2008, 12:09 pm
Press Release: European Union
Andris Piebalgs, EU Energy Commissioner, Jeddah Energy Meeting, Sunday 22 June 2008

http://www.scoop.co.nz/stories/WO0806/S00502.htm

SNIPS
We are facing a unique situation, and one that we should see as an opportunity to work together, and to set a precedent for the future.
+
I would suggest therefore, a clear objective for such a partnership, that all can understand. This may be, for example, a joint commitment to take the necessary steps with the aim of bringing oil prices to a more reasonable level,
in the order for example of a 2-digit figure per barrel,
and to stabilise it at such levels for a reasonable period.
+
Today’s meeting represents an opportunity to make real progress on an issue that is vital to every citizen on the planet; from the poorest to the very rich. On behalf of the European Union I can unequivocally state that we will play our part in any such partnership. We would welcome a follow up mechanism that would enable to fully implement the final conclusions of the Jeddah Meeting, and to meet at regular intervals. We need to be result-oriented, and to show our industries and citizens that the current situation is of concern to us all.

When human intelligence is confronted with the highest truths, it is in the same situation as the bat who is dazzled by the light of the sun, writes Aristotle in lines 993b9-11 of his Metaphysics.
For Thomas Aquinas, in the Preface to his “Commentary on the Book of Causes” (Super Librum De Causis Expositio), this bat becomes an owl whose eye cannot perceive the sunlight well because of the sun’s intense brightness.
Here’s the consolidation of the papers which I submitted, but did not present, to the GCC Currency Forum 2008, held in Dubai on 15 June 2008. (GCC is the Gulf Cooperation Council.)

1.
One of the hot topics the Forum is discussing is:
Will the banks buy or sell Gold in an unstable market?

Two of the participants at the Forum, the International Monetary Fund (IMF) and the European Central Bank (ECB), hold diametrically opposed views on the subject.

Whereas before 15 August 1971, when US President Richard Nixon broke the Bretton Woods system, the US dollar was a Gold derivative, current IMF rules (article IV, section 2, (b), of the IMF Articles of Agreement) prohibit members from linking their currencies to Gold.
Since that date, the IMF has no more reason of existence.
If the IMF continues to exist, this is in order to support the bankrupt dollar regime, thereby making of Gold a dollar derivative.

The ECB wants FreeGold as an alternative to the IMF-supported dollar regime.
The ECB does this by letting Gold remain an important element of the euro’s reserves, but by severing the euro’s link not only link to Gold, but also its link to the nation-state.

The ECB views Gold as a wealth reserve.
The IMF prohibits the linking of a currency to Gold.
By viewing Gold as a wealth reserve, the ECB has severed the link of the euro to Gold.

The ECB’s and others’ FreeGold concept, a freely floating price of Gold as an alternative to the dollar regime, makes Gold the natural vehicle to temporarily or eternally store one’s wealth in, in order to be able to later convert it into tangible wealth.
FreeGold in the central banks’ strong-rooms has the same role to fulfil as the Mona Lisa in the Louvre-museum in Paris, a wealth reserve which would now be in the strong-room (the Louvre) of a monetary union.

2.
The ECB was established in 1998.

On Sunday, 26 September 1999, on the sidelines of an IMF-meeting in Washington D.C., the ECB and the central banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, and England jointly announced, in what has since then become known as the Washington Agreement, that Gold will remain an important element of global monetary reserves. The Agreement, which covered the five years from 27 September 1999 and was renewed for five years on 8 March 2004, went on to limit Gold sales by the signatories. (1) (2)

In his 09 May 2002 Acceptance speech of the International Charlemagne Prize of Aachen, Germany, for 2002, the ECB’s first President, the late Dr. Willem F. Duisenberg, did however say that the euro is the first currency that has not only severed its link to Gold, but also its link to the nation-state. (3)

quote:
The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to Gold, but also its link to the nation-state.
It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of Gold five hundred years ago — that it was made for men and that it had its value by them — applies very well to the euro.
unquote

3.
The IMF was established by the Bretton Woods Agreements during the first three weeks of July 1944, says Wikipedia. (4)

The goal of IMF was to supervise the Bretton Woods system which linked the US dollar to Gold and all other currencies to the said dollar.
The US dollar was linked to Gold.
The value of the US dollar could thus be derived from Gold.
The dollar was a Gold derivative.

The international supply of two key reserve assets — Gold and the US dollar — proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore Special Drawing Rights (SDRs) were created in 1969, says the IMF. (5)

An SDR is a potential claim on the freely usable currencies of IMF members. It is neither a currency, nor a claim on the IMF. SDRs are defined in terms of a basket of major currencies used in international trade and finance. At present, the currencies in the basket are the euro, the pound sterling, the Japanese yen and the United States dollar.

SDRs are paper Gold, they eliminate the logistical and security problems of shipping Gold back and forth across borders to settle national accounts.
A few countries peg their currencies against SDRs, [… but …], the euro is displacing the SDR as a basis to set values of various currencies, continues Wikipedia. (6)

On 15 August 1971, that is, two years only after the introduction of SDRs, US President Richard Nixon broke the Bretton Woods system. He closed the Gold window, making the dollar inconvertible to gold directly, except on the open market.

Article IV, section 2 of the IMF Articles of Agreement now provides under (a) and (b) concerning general exchange arrangements:
(a) Each member shall notify the Fund, within thirty days after the date
of the second amendment of this Agreement, of the exchange arrangements it intends to apply in fulfillment of its obligations under Section 1 of this Article, and shall notify the Fund promptly of any changes in its exchange arrangements.
(b) Under an international monetary system of the kind prevailing on January 1, 1976, exchange arrangements may include (i) the maintenance by a
member of a value for its currency in terms of the special drawing right or another denominator, other than gold, selected by the member, or (ii) cooperative arrangements by which members maintain the value of their currencies in relation to the value of the currency or currencies of other members, or (iii) other exchange arrangements of a member’s choice. [italisations mine] (7)

Article IV, section 2, (b), (i) of the IMF Articles of Agreement thus mentions Gold and SDRs in the same sentence.

Nixon did never explicitly say that he severed the link of the US dollar with Gold.

He only repealed its redeemability, thinking that from the moment you have a claim to Gold, you possess that Gold, even though there is no way in which that debt could be settled by the debtor through a physical transfer of Gold.

“Monkey see, Monkey do!” So-called Gold bugs then became only interested in paper Gold, that is, contracts embodying wagers as to the price of Gold. They were not interested in the possession of Gold as a wealth reserve, but only in concluding wagers over the price of Gold, paper contracts about the price of Gold, in order to pocket the monetary surplus value.

With the dollar currently plummeting and Gold slowly rising, we seem to be approaching the day when we shall find out what happens when a non-redeemable currency meets a real demand for redeemability. The so-called Gold bugs are also going to find out that their contracts embodying wagers as to the price of Gold are not even worth the paper they are written on.

Since 15 August 1971, the USA is in the possession of a blank check to print as much green paper, also known as the US dollar, as it wants.

Since that date, the present monetary system has no more link to Gold and the IMF has no more reason of existence (the IMF has to maintain the Bretton Woods system which is no longer in force).

If the IMF continues to exist, this is in order to support the bankrupt dollar regime.

The IMF thereby makes of Gold a dollar derivative, whereas the Bretton Woods system made of the dollar a Gold derivative.

The IMF has been described by some as a tool of neo-colonialism. That is too mild, as 19th-century British or European colonialism, however harsh, never managed to accomplish the extent of devastation and destruction of health and living standards the IMF has done since the 1970s. (8)

THE QUESTION

4.
Whereas the 1999 Washington Agreement did say something about re-establishing the link between Gold and the euro, which the IMF prohibits, the 2002 Duisenberg statement says that the link has been severed. The 2004 renewal of the 1999 Agreement confirmed that Gold will remain an important element of global monetary reserves.

What could have replaced the severed link?

What is it that actually comes in the place of the severed link (2002), Gold remaining an important element of global monetary reserves (1999 and 2004)?

That’s the question which must be tackled before the hot topic “Will the banks buy or sell Gold in an unstable market?” can find an answer.

That question as to what replaced the severed link is so crucial that nobody dares to talk about it in the open because even if one only vaguely refers to it, it may become obvious to intelligent listeners.

5.
The answer has to start by clearly distinguishing between Gold as a currency or Gold as a hedge against inflation and other economic and political disorders, on the one hand, and Gold as a wealth reserve, on the other.

Both views are diametrically opposed and cannot be reconciled.
Either, one holds the view that Gold is a currency and hedge against inflation and other economic and political disorders.
Or, one holds the view that Gold is a wealth reserve.
It is impossible for Gold to be considered at the same time and in the same respect both as a currency and hedge against inflation and other economic and political disorders, on the one hand, and as a wealth reserve, on the other.
If Gold is to be a wealth reserve, it cannot be any kind of paper-(non-)Gold (hedging) derivative.

Indeed, since Aristotle, the principle of non-contradiction says that it is impossible to be and not to be at the same time and in the same respect. Contrary to what many authors argue, this principle, or law, is not applicable to reality, only to thought. Thought is submitted to it. Reality is not. (9)

It may be that in reality Gold is both a hedge/currency and a wealth reserve, but you must make up your mind (thought) as to whether you consider it as either a hedge/currency or a wealth reserve.

Please be aware that if you make up your mind so as to think that “Gold is money” and thus that gold is a hedge/currency, you are giving bankers full licence to treat it like money, thus throwing open the door to lost purchasing power of the metal, thereby nullifying its value as a wealth reserve.

6.
In the old days before 15 August 1971, the dollar/Gold was a currency and a hedge against inflation and other economic and political disorders.
That was the dollar regime.

On 15 August 1971, the dollar and Gold have been disjoined.
The said regime has thus no more link to Gold.
The regime is however still being supported by the IMF whose sole purpose is precisely to maintain/uphold the link between the dollar and Gold.

FreeGold is an alternative to the dollar regime. It is the opposite of the absurd IMF paper-SDR situation.

FreeGold views Gold in possession as wealth, not as currency, nor as hedge.

FreeGold is the view of the ECB, of many Gold saving individuals in India and other countries, of many oil producers in the Member States of the GCC, and of many others, who have severed the link between Gold and currency and are holding Gold wealth as a constant and reliable store for what they possess as property.

The accounting standards of the two views differ.
The IMF-supported dollar regime values Gold reserves at fixed price.
FreeGold values Gold reserves on a mark-to-market (MTM) basis.

The ECB is therefore not defining the euro like the old Gold standard as a certain quantity of Gold, but is using Gold as a freely trading financial reserve so that each increase in the price of Gold brings about an increase in the value of the euro’s reserves and thus an increase in the value of the euro itself.

This FreeGold concept, a freely floating price of Gold as an alternative to the dollar regime, must be wringed out of the dollar regime.

It makes Gold the natural vehicle to temporarily or eternally store one’s wealth in, in order to be able to later convert it into tangible wealth.

FreeGold in the central banks’ strong-rooms has the same role to fulfil as the Mona Lisa in the Louvre.
Just as the Mona Lisa never was the backing of the franc (nor is the Mona Lisa at present the backing of the euro), and just as the French government never was concerned with the Mona Lisa’s actual currency value, so do FreeGold advocates think about Gold.

FreeGold advocates are therefore not concerned with exchange rates, stock market crashes, interest rates, financial collapses, devaluations, inflations.
They do not view Gold as a hedge.
They view Gold as Gold metal, not Gold paper (the wagers about its value).
They do not view Gold as a derivative, but they re-establish Gold metal in its status as an official and private wealth reserve.
A wealth reserve which would now be in the strong room (the Louvre) of a monetary union.

The first view, the view of gold as a currency and a hedge, still has its supporters and Gold can for some people and some central banks continue to be a dollar derivative, because the US Federal Reserve, the central bank of the USA, is able to create as much dollars as it wants and was until very recently thereby able to keep the price of Gold (Gold exchange value) in close connection with the dollar exchange value.

With the dollar plummeting and Gold slowly rising, things seem recently to have entered into a whirlpool of transition.
The FreeGold concept is being wringed out of the dollar regime.
More counter-parties in paper Gold contracts seem to be insisting upon Gold being actually delivered to them.

FreeGold is thereby gaining more and more respect.

When will the IMF, the US Treasury, and the rest of the dollar regime (be forced to) surrender?

When will you, Dear Forum Delegate, realise that in order to permanently consolidate your wealth so that its purchasing power can be maintained, you should invest your wealth in the unified currency which is being used since ages – GOLD?

Or do you think that’s a four-letter word?

Or that the GCC is not part of Gold’s optimal currency area?
Gold is a wealth reserve, not a hedge, nor a … currency, remember?

Will the banks buy or sell a wealth reserve in an unstable market?

The euro is the first currency that has not only severed its link to Gold, but also its link to the … nation-state, remember?

THE PIECES OF THE PUZZLE – Update of 14 June 2008

7.
Gulf Arab Central bankers last week reached a (Draft) Agreement concerning the nucleus of a Central Bank. The Agreement will lead to the creation of a Monetary Council, as a precursor to the GCC Central Bank, like the European Monetary Institute was a precursor to the European Central Bank.The Monetary Council will have no monetary policy decision-making power.

I said [above] that the GCC needs FreeGold, a freely FLOATING price of Gold as an alternative to the dollar regime and must define the GCC single currency not like the old Gold standard as a certain quantity of Gold, but must use Gold as a freely trading financial reserve so that each increase in the price of Gold brings about an increase in the value of the currency’s reserves and thus an increase in the value of that currency itself.

Reuters India reported on Thursday 12 June 2008 that Qatar Central Bank Governor Sheikh Abdullah told Reuters after Monday’s meeting:
“We are not talking about the currency, […]” (10)

Emirates Business 24-7 reported on 13 June 2008 that
“As for the single GCC currency, it could be linked to a basket or stay with the dollar or could be FLOATED … but this decision is to be taken later,” said Abdul Aziz Al Owaishik, a minister at the GCC Secretariat in Riyadh. “But it is extremely important that the currencies of the GCC countries must have a peg before the creation of the monetary union… it does not matter whether this peg is the dollar or a basket. As for Oman, it has announced that it will not be part of the union but can join it at a later stage,” he said in Jeddah. [italisation mine] (11)

Everything thus seems to fall into place for FreeGold, for the marking to market of gold (and oil) reserves.

Advocating the marking of these reserves to market is arguing that the accurate price of these reserves can only be found through the actual price of gold and oil on the gold and oil markets.
The opposite of marking to market is marking to model. Marking to model is marking on the basis of assumptions, marking on the basis of guesswork.

There are other Monetary Unions than Monetary Unions which fit into the International Monetary Fund (IMF)-straitjacket.
I understand that the IMF has not yet severed the link between currency and gold and is still defining the US dollar as a certain quantity of Gold.
If the GCC marks its Gold reserves to market, whereas the dollar, to which the GCC single currency would remain pegged (in a basket), marks them to the model of $42 or so an ounce, we would have a contradiction in the GCC single-currency system. Does that explain why the launch of the GCC single currency should be postponed until … ?

Ivo Cerckel
ivocerckel AT siquijor DOT ws

Siquijor, 01 June 2008
Sharjah, 14 June 2008

ENDNOTES

(1)
1999 – The European central banks declare their confidence in Gold
Press release – joint statement on Gold, 26th September 1999

http://www.reserveasset.Gold.org/central_bank_agreements/

(2)
ECB PRESS RELEASE
8 March 2004 Joint Statement on Gold

http://www.ecb.int/press/pr/date/2004/html/pr040308.en.html

(3)
International Charlemagne Prize of Aachen for 2002
Acceptance speech
by Dr. Willem F. Duisenberg, President of the European Central Bank,
Aachen, 9 May 2002.

http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html

(4)
Bretton Woods system
From Wikipedia, the free encyclopedia

http://en.wikipedia.org/wiki/Bretton_Woods_system

(5)
A Factsheet – April 2008
Special Drawing Rights (SDRs)

http://www.imf.org/external/np/exr/facts/sdr.htm

(6)
Special Drawing Rights
From Wikipedia, the free encyclopedia

http://en.wikipedia.org/wiki/Special_Drawing_Rights

(7)
Articles of Agreement of the International Monetary Fund

http://www.imf.org/external/pubs/ft/aa/index.htm

(8)
F. William Engdahl, How the IMF Props Up the Bankrupt Dollar System

http://www.serendipity.li/hr/imf_and_dollar_system.htm

(9)
Fernand Van Steenberghen, (F.-X. de Guibert, ed.), Philosophie fondamentale , Longueuil, Québec, Editions du Préambule, 1989, footnote p. 296:
Contrairement à ce qu’affirment beaucoup d’auteurs, ces principes [the principle of non-contradiction, the law of the excluded-middle and the law of identity] sont des lois logiques ou des lois de pensée comme telle et non des lois de l’ordre réel.

(10)
UPDATE 1-Gulf FX union deal was finalised this week -UAE
Thu Jun 12, 2008 4:42pm IS

http://in.reuters.com/article/asiaCompanyAndMarkets/idINL122465720080612

(11)
Monetary union on schedule in 2010
Emirates Business 24/7, United Arab Emirates – Jun 13, 2008

http://www.business24-7.ae/Articles/2008/6/Pages/06142008_4a20fb00dd664038bd514200dbbca6e8.aspx

In defense of SWFs

1.
The politicians of the west are afraid of the Sovereign Wealth Funds (SWFs) that today dominate global finance.

An SWF is a state-owned investment fund composed of financial assets such as stocks, bonds, property or other financial instruments, says Wikipedia. As I understand it, it is the wealth, not the Fund, which is sovereign.

We are told by the western politicians that SWFs, especially those in oil producing countries such as the United Arab Emirates, and those in China and Russia, could take politically motivated investment decisions, thereby serving interests that go beyond purely financial ones.

Germany, whose President, Horst Koehler, is a former International Monetary Fund (IMF) boss, is therefore finalising a draft law aimed at protecting companies from foreign takeovers, a press report said on Monday. Under terms of the bill, the government would be able to scrutinise acquisitions by foreign SWFs of more than 25 percent in a German company. If such a purchase was deemed to pose a threat to German public security or order, Berlin could prevent it from going through. Until now, the government held this kind of veto only over deals that involved the arms industry. (1)

The USA, on the other hand, is fully realising that SWFs may lack confidence in its beleaguered dollar (also for reasons of fierce ideological hostility). This lack of confidence could make SWFs bet against the USA, her economy and/or her currency.
Acting through ‘its’ Secretary of the Treasury, Henry M. Paulson, Jr., the USA nevertheless proposed on Monday 02 June 2008 in Abu Dhabi, United Arab Emirates, that the IMF develop “best practices” for SWFs to ensure they do not use their huge government investment funds to further their political goals. (2)

2.
In order to take over foreign companies, SWFs need to pay with money.

A reserve currency (or anchor currency) is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, such as oil, gold, etc.
This permits the issuing country to purchase the commodities at a marginally cheaper rate than other nations, which must exchange their currency with each purchase and pay a transaction cost. (For major currencies, this transaction cost is negligible with respect to the price of the commodity.) It also permits the government issuing the currency to borrow money at a better rate, as there will always be a larger market for that currency than others, says Wikipedia.

On 09 November 2007, Paulson said that
the dollar has been the world’s reserve currency since World War II and it’s been that for a reason. We are the biggest economy in the world, we are as open as any economy to investment, to trade, and we’ve had stable economic policies … we’ve had good productivity. (3)

On 02 June 2008, he said that
the US dollar has been the world’s reserve currency since World War Two and there is a good reason for that. The United States has the largest, most open economy in the world, and our capital markets are the deepest and most liquid. (4)

3.
Paulson’s statements of 09 November 2007 and of 02 June 2008 both argue that there is a good reason for the dollar being the world’s reserve currency since the Second World War.

Both forget that the Bretton Woods system, which was instituted in July 1944 and which made of the dollar a Gold derivative, was repealed by US president Richard Nixon on 15 August 1971.

Since that date, Gold is a dollar derivative and the US dollar is no longer convertible Gold directly, except on the open market.

Since that date, the USA is in the possession of a blank check to print as much green paper, also known as the US dollar, as it wants.

Since that date, the IMF, which was instituted precisely to maintain the Bretton Woods system, has no more reason for existence, except in order to bail out the bankrupt dollar regime.

Nixon did ‘never’ explicitly say that he severed the link of the US dollar with Gold.

He only repealed its ‘redeemability’, thinking that from the moment you have a claim to Gold, you possess that Gold, even though there is no way in which that debt could be settled by the debtor through a physical transfer of Gold.

In his 09 May 2002 Acceptance speech of the International Charlemagne Prize of Aachen, Germany, for 2002, the European Central Bank (ECB)’s first President, the late Dr. Willem F. Duisenberg, did however say that the euro is the first currency that has not only severed its link to Gold, but also its link to the nation-state. (5)

Paulson does not seem to be aware of these facts of 1971 and 2002. (Nixon repealing the convertibility of the dollar to gold, Duisenberg saying that the euro has severed the link between euro and gold).

By the same token, Paulson does not seem to be aware of the fact that on Sunday, 26 September 1999, on the sidelines of an IMF-meeting in Washington D.C., the ECB and the central banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, and England jointly announced, in what has since then become known as the ‘Washington Agreement’, that Gold will remain an important element of global monetary reserves. The Agreement, which covered the five years from 27 September 1999 and was renewed for five years on 8 March 2004, went on to limit Gold sales by the signatories. (6) (7)

4.
The difference between Paulson’s two statements seems to be that
whereas seven months ago, Paulson said that the USA has had stable economic policies and good productivity,
now he’s saying that the capital markets of the USA are the deepest and most liquid capital markets.

Paulson is thus no longer interested in economic policies and production of tangible wealth, but only in the depth and liquidity of capital markets where the financial instruments, of which the SWFs are composed, are being traded.

Could the reason be that, fully realising that SWFs may lack confidence in its beleaguered dollar, Paulson nevertheless wants to attract SWFs to the capital markets of the USA, hoping that the IMF, which was previously headed by Germany’s present president, Horst Koehler, could continue to bail out the USA if the policies of the USA, not of the SWFs, cause problems in the USA?

5.
Germany, of which Horst Koehler is thus president, cannot expect to be bailed out by the IMF if the policies of Germany or of the European Union, of which Germany forms part, cause problems in Germany.

Germany has thus found it necessary to draft a bill whereby the German government would be able to scrutinise acquisitions by foreign SWFs of more than 25 percent in a German company.

SWFs do however not invest in order to exercise power or control.
SWFs invest in order to make money.

At the World Economic Forum held from 18 to 20 May 2008 in Sharm El Sheikh, Egypt, the Duke of York therefore said that there is no reason for countries to restrict investment by SWFs and, on Saturday 24 May 2008, the United Arab Emirates therefore agreed to establish a joint economic committee with the Kingdom of Spain, during a state visit by His Majesty King Juan Carlos to the Gulf state. (8) (9)

Germany is a member of the European Union (EU).
Spain, Yorkshire, England, Great Britain and the United Kingdom also.

Koehler’s government does not seem to know economics or economic theory.

As I said earlier, Paulson does not seem to know economic history.

In order to fight off the attempts by Koehler’s government, by Paulson and by the IMF, to destroy not only the Gulf economy and the economies China and Russia, but also the economies of the west,
the Duke of York has slammed the protectionism toward SWFs and His Majesty King Juan Carlos has agreed to establish a joint economic committee with the United Arab Emirates.

The issues are clear.

The parties also – European Royalty versus western politicians and western bureaucrats.

Ivo Cerckel

NOTES

(1)
Germany finalises draft law on sovereign wealth funds: report
02/06/2008 08h05

http://www.afp.com/english/news/stories/newsmlmmd.22f0376cebcd7c2596233a8a35685ff5.291.html

(2)
Thomson Financial News
US’ Paulson says foreign direct investment is welcome in United States
06.02.08, 5:21 AM ET

http://www.forbes.com/afxnewslimited/feeds/afx/2008/06/02/afx5068429.html

(3)
UPDATE 2-Paulson: Dollar is world currency “for a reason”
Fri Nov 9, 2007 6:10pm EST
By David Lawder and Mark Felsenthal

http://www.reuters.com/article/bondsNews/idUSN0930678420071109

(4)
Paulson committed to dollar as reserve currency
Mon Jun 2, 2008 6:46am EDT
By David Lawder

http://www.reuters.com/article/newsOne/idUSL0244883920080602

(5)
International Charlemagne Prize of Aachen for 2002
Acceptance speech
by Dr. Willem F. Duisenberg, President of the European Central Bank, Aachen, 9 May 2002

http://www.ecb.eu/press/key/date/2002/html/sp020509.en.html

(6)
1999 – The European central banks declare their confidence in Gold
Press release – joint statement on Gold, 26th September 1999

http://www.reserveasset.Gold.org/central_bank_agreements/

(7)
ECB PRESS RELEASE
8 March 2004 Joint Statement on Gold

http://www.ecb.int/press/pr/date/2004/html/pr040308.en.html

(8)
Duke of York slams protectionism toward wealth funds
by Andrew White at the WEF and Dylan Bowman in Dubai on Tuesday, 20 May 2008

http://www.arabianbusiness.com/519858-duke-of-york-slams-protectionist-response-to-wealth-funds

(9)
UAE, Spain forge economic, military ties
by Lynne Roberts on Sunday, 25 May 2008

http://www.arabianbusiness.com/520121-uae-spain-forge-economic-military-ties