Europe's Been Onto Something ... While the US gently weeps
European Central Bank council member Ewald Nowotny said a ``tri-polar'' global currency system is developing between Asia, Europe and the U.S ... leaders of the U.S., France and the European Commission will ask other world leaders to join in a series of summits on the global financial crisis beginning in the U.S. soon after the Nov. 4 presidential election, President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Barroso said in a joint statement yesterday.
European leaders have pressed to convene an emergency meeting of the world's richest nations, known as the Group of Eight, joined by others such as India and China, to overhaul the world's financial regulatory systems. ... Sarkozy wants the G8 to consider re-anchoring their currencies, the hallmark of the 1944 Bretton Woods agreement that also gave birth to the International Monetary Fund and World Bank.
The EU region calling for a 'G8 + India & China' conference to thrash out this global monetary issue - and has been twisting the knife in the reluctant US side. The US has been dragging its feet. While the EU has been going gung-ho on this, the US has been floating many trial balloons. Warren Buffet, Paul Volcker and Lawrence Summers have been co-opted by the likely President of the US - Barack Obama. There has been talk of a manipulation in bullion prices - which may be required for re-anchoring currencies. Interesting deals - considered impossible till a few years, are being done in a tearing hurry.
The US Gameplan
US analysts, led by Paul Krugman, have been calling for Barack Obama (or maybe McCain) to emulate Roosevelt - who waded into WW2, with 25,000 tons of nationalized gold. If gold is nationalized, it may depress demand in the short term - giving rise to huge volatility in gold prices. But Warren Buffett has been on the silver bandwagon for a while - and that is making the gold-silver equation hazy. What if Warren Buffet becomes the new US Treasury Chief? There is the real risk of another fraud like the gold standard happening all over again.
The US has been making its moves - differently. Paul Krugman's Nobel Prize is an indication of this. Will the US use Paul Krugman as the Keynes of the Bretton Woods. The background of Bretton Woods itself, is of course something that the US and Europe do not want the world at large to know.
What Has Been India Upto?
While the US has been resisting calls for action, busy doing post-mortem, Asia and Europe have been moving. Interestingly, Manmohan Singh has done some huge work in the last 60 days - the nuclear deal with the USA and NSG, the IBSA Summit, the ASEAN free trade agreement - and now his three Asian nation visits. India's Trade and Commerce Minister, Kamal Nath, has been talking about a multi-lateral set up. The UN was made to issue a statement on this. Am I reading too much into this? At times, India has seemed clueless.
China and Russia
The big issue is of course, China and Russia. China has 2 trillion of US dollars - and what does China do with this? Russia has come out from a default about a decade ago - with a nearly US$400 billion reserves - flexing its muscles in Georgia and dependent on a high oil prices. What happens to Russia if a new Pacific Republic (Cuba, Haiti, West Indies, etc) were to start drilling for oil? In 5 years, the world would be awash with oil - and Russia's mineral earnings could evaporate. This crisis seems to have made the Chinese Premier shaky. So, the world may not trust China and Russia too much. Russia and China cane bet the party poopers - but they cannot be the life of the party.
Contours Of The Deal
The EU-USA-Asia may agree on a broad a global regulatory and oversight body to monitor and maintain oversight over a multiple currency regime. The new currency may an Asian-Developing world currency. Some of Asia may want to cling to the dollar skirt.
The new 3rd currency may take some time to figure out.