Basket Pegging versus Price Stability
Posted by Ivo Cerckel on December 18th, 2008
No effort is being spared by the DIFC to prevent the GCC from adopting Honest Money. By the same token, the DIFC wants oil prices to forever remain indecently low.
The 29 and 30 December 2008 Muscat, Oman, Gulf Co-operation Council (GCC) Summit will set up the 2009 Gulf Monetary Council (GMC), a precursor to the 2010 Gulf Central Bank (GCB).
The current worldwide economic situation is due to the phenomena of unbacked paper money (the metaphor of “printing” money is still being used for worthless digital liquidity representing “money”) and fractional-reserve banking.
The USA Federal Reserve will do whatever it takes to keep these phenomena alive. As USA president-elect Barack Obama told reporters this week, after the decision of the USA central bank to lower interest rates to ZERO, the USA is running out of the traditional ammunition that’s used in a recession, which is to lower interest rates. This, said Obama, underscores the case for a big fiscal stimulus. (1)
Obama is thus predicting more free zerodollars, created through the printing press, until the zerodollar vase will break.
Still, in an “Economic Note”, published on 17 December 2008, the Dubai International Financial Centre (DIFC) calls for the GCC single currency, the Khaliji, to be pegged to a basket of global currencies comprising the soon to be broken USA zerodollar, the euro, the Japanese yen and the British pound. (2)
The basket would not only comprise the zerodollar. The zerodollar would determine FORTY-FIVE PERCENT of the basket’s value. (3)
According to the final draft, however, the GMC/GCB will be independent from the governments of the member countries and its aim will be to “maintain price stability”, a senior Gulf official said last month. (3 again)
How will the GMC/GCB be able to maintain price stability if the Khaliji is pegged to a basket of currencies? The question is difficult enough to answer. The question becomes impossible to answer when one realises that almost half of the basket’s value will be determined by the USA zerodollar, which is soon to go lalala.
Price stability concerns the relationship between a currency and a basket of goods and services.
How will the GMC/GCB be able to maintain price stability, if the Khaliji is pegged to a basket of currencies, that is, if the value of the Khaliji is itself determined by a basket of currencies (half of which basket is soon to go lalala)?
How will the stability between those two baskets be achieved?
The Muscat GCC Summit later this month should therefore decide to immediately pool the GCC gold reserves, make this pool the reserves of the Khaliji and periodically mark these reserves to market (-price).
In that case, every increase in the price of gold, will lead to an increase in the value (of the reserves) of the Khaliji.
Gold is hiding in oil because oil is the only commodity in the world that is large enough for gold to hide in.
If the Muscat GCC Summit decides to immediately pool the GCC gold reserves, make this pool the reserves of the Khaliji and periodically mark these reserves to market (-price),
then every increase in the price of gold will automatically lead to an increase in the price of oil.
By the same token, the present indecently low USA zerodollar-denominated oil prices in lalala-land will immediately come to an end.
The proceeds from the oil sales can then be converted into Islamic gold dinar to complement the GMC/GCB’s gold reserves. (4)
That’s the way to achieve Honest Money.
But the DIFC prefers to concentrate its efforts on its hopeless attempt to keep the zero-paper-money house of cards standing for a few more seconds.
Ivo Cerckel
Siquijor, 18 December 2008
NOTES
(1)
Fed slashes rates to near zero
By Krishna Guha in Washington
Published: December 17 2008 02:00 | Last updated: December 17 2008 02:00
http://www.ft.com/cms/s/0/a4760824-cbdb-11dd-ba02-000077b07658.html
(2)
DIFC Economic Note Recommends Pegging GCC Common Currency to a Basket of Currencies
Press Release.
17 December 2008
http://www.zawya.com/Story.cfm/sidZAWYA20081217115746/DIFC%3A%20Peg%20GCC%20Common%20Currency%20to%20Basket
(3)
DIFC report urges end to Gulf’s dollar peg
by Daliah Merzaban on Wednesday, 17 December 2008
http://www.arabianbusiness.com/541423
(4)
Islamic gold dinar, Oil, and Khaleej dinar – first exploration
December 8th, 2008 by Ivo Cerckel
http://bphouse.com/honest_money/2008/12/08/islamic-gold-dinar-oil-and-khaleej-dinar-%E2%80%93-first-exploration/ – if the link foes not work, try copy and paste it in your browser
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