The World Monetary System !! PART - 1 of 2

I have spent countless nights researching Money and the origins of wealth. Most people take the world monetary system for granted. They think of Money as something that has always existed and something that will always exist. Here are some facts that make you think......

1) World's richest 1% own 40% of all wealth

2) Poorest 50% of world's adults own just 1% of the wealth

3) Richest 10 % account for 90 % of the world's wealth

4) Only 3% of all money in the world exists as cash.....97% of it exists as 1s and 0s in computers across banks. 

 

You don't have to be a very intelligent man to understand that there is something deeply wrong with the system. I have always believed that to understand something you need to go back to the basics. Question the underlying concept. 

We know that at some point in time we moved from the barter system to hard currency, coins and then notes. In order to understand the present monetary system, we need to go back to July 1944. I assume this to be the point when the modern monetary policy was put into effect. This is not some arbitrary date, but the time when the world money system, as we know it today, was put in place. 

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.

Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944.  

Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF). These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States' suspension of convertibility from dollars to gold. This created the unique situation whereby the United States dollar became the "reserve currency" for the nation-states which had signed the agreement.

I copied the 2 paragraphs above from WIKI :) 

You can read the whole history if you are interested in Economics. Its extremely interesting, I can tell u that. 

In 1945, the world was very different from what it is today. The economy of Europe was destroyed because of the first world war, the great depression and the second world war. Most Asian and African countries were still colonies fighting for freedom. They had nothing....Nothing! No money, no rights and no power to negotiate. The only country that emerged relatively unscathed was the USA. 

Before the agreement, the currencies of the world were valued or pegged against gold. Each country had its own gold reserves, their currency was guaranteed by gold and gold was the major unit of trade between countries in case they had a major trade deficit. 

As a consequence of the bretton woods agreement all the governments of the world transferred their gold reserves to the US. It still resides there today . About 70% of all gold ever mined in the world is in the US. Only the US dollar was now backed by gold  !!! And the world currencies pounds, francs, rupees etc etc were now backed by US dollars, making the US dollar the reserve currency of the world !!!! Later after this system failed in 1971, even the US dollar was not backed by gold. Essentially it is backed by nothing. If the US fails, so does the world. 

If you think this is not fraud enough....you haven't heard the worst of it !!

THE IMF 

The IMF was to be the world organization that would assist, finance (  lend at an interest ) to countries who had big trade deficits. 

The big question at the Bretton Woods conference with respect to the institution that would emerge as the IMF was the issue of future access to international liquidity and whether that source should be akin to a world central bank able to create new reserves at will or a more limited borrowing mechanism.

What emerged largely reflected U.S. preferences: a system of subscriptions and quotas embedded in the IMF, which itself was to be no more than a fixed pool of national currencies and gold subscribed by each country as opposed to a world central bank capable of creating money. The Fund was charged with managing various nations' trade deficits so that they would not produce currency devaluations.  

When joining the IMF, members were assigned "quotas" reflecting their relative economic power, and, as a sort of credit deposit, were obliged to pay a "subscription" of an amount commensurate to the quota. The subscription was to be paid 25% in gold or currency convertible into gold (effectively the dollar, which was the only currency then still directly gold convertible for central banks) and 75% in the member's own currency.

In the event of a deficit in the current account, Fund members, when short of reserves, would be able to borrow foreign currency in amounts determined by the size of its quota. In other words, the higher the country's contribution was, the higher the sum of money it could borrow from the IMF.The countries issued bonds and they got cash.

Now if the inequality of this system is not immediately apparent to you , you are not intelligent enough to view this blog...please stop reading !!

Now lets talk about the Quotas :)  If you think quotas for SC/ST etc are wrong. This is a completely different type of quota. It is like giving quotas to the upper class which is even dumber.....

Lets talk numbers :)

USA - 17% 

UK -  5 %

France - 5 %

Japan - 6.13 %

Germany - 6 %

Italy - 3.25 % 

China -  3.72 %

Saudi Arabia - 3.21 %

Canada - 3 %

Russia - 2.74 %

Pot Smoking Netherlands - 2.38 %

Belgium- 2.12 %

India - 1.91 %

Switzerland - 1.6 %

Australia - 1.5 % 

Mexico- 1.45 %

Spain - 1.4 %

Brazil - 1.4 %

Argentina - 1 %

Pakistan - 0.5%

Keep in mind that these quotas are the latest and have been arrived upon by successive iterations every 5 -10 years. The Initial quotas of 1945, gave about 60% voting rights to G8 at that time. 

About 21 countries are indebted to the IMF since it was started. Those in debt include Brazil, Argentina, Chile, Pakistan, South Africa and most of Africa. 

I think the men who put the Monetary system of the world in place probably did it with the best of intentions, or maybe they were just plain evil. But the fact remains that this is the system we live in. They could never have fathomed the kind of world we live in today, the kind of technology that would exists. Think about it. We produce enough food every year to feed the whole world for a year and a half, yet people die of hunger. 

I think I have given you enough to think about and shed some light on the shady monetary system of the world. 

Will continue this post later :) 

I am posting references so u can make intelligent comments instead of some gen chutiyaps ....

http://www.guardian.co.uk/money/2006/dec/06/business.internationalnews

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

http://www.imf.org/external/np/sec/memdir/members.htm

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