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The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE

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02 December 2012
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The Curse of the Reserve Currency
BY JOHN BUTLER Print
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In this Edition Is reserve currency status an economic blessing or a curse? The answer might seem obvious, as reserve currencies have been shown to confer lower borrowing costs on their issuers. But what of the borrower who, enticed by low interest rates, borrows more than they can pay back? Naturally the result will be a default. However, for the issuer of a reserve currency that is unbacked by a marketable commodity, such as gold, in the event that they borrow too much, they can just print more currency. While this avoids default indefinitely, it also hollows out the economy, erodes the capital stock, reduces the potential growth rate and, eventually, leads to a dramatic devaluation of the currency and loss of reserve status. History has not been kind to countries that have followed this path. In my view, the grave investment risks associated with the US dollar’s inevitable and potentially imminent loss of reserve status are not priced into financial markets.
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Reserve Currencies, Trade Imbalances and the 'Triffin Dilemma'
Having written a book about international monetary regime-change past, present and future, I weigh in again in this Amphora Report on what is gradually becoming a more mainstream debate about whether or not the US dollar is at risk of losing reserve currency status, what currencies, if any, might replace it, and, should it happen, what general economic and financial market implications this would likely have.[1] As it happens, I have a rather strong opinion on all of these matters. But first, let’s consider what a reserve currency is and what it is not. Second, let’s distinguish carefully between reserve currencies that are backed by a marketable commodity, such as gold or silver, and those that are not. Third, let’s take a look at shifting global economic power and monetary arrangements. Then we can move into what I think is going to happen in future, what this implies for financial and commodities markets, and what investors can and should do to prepare. What, exactly, is a reserve currency? It is an international money that is used to pay for imports from abroad and is then subsequently held in ‘reserve’ by the exporting country, as it does not have legal tender status outside of its country of issuance. In the simple case of two countries trading with one another, with one being a net importer and one a net exporter, over time these currency ‘reserves’ will accumulate in the net-exporting country. In practice, as reserves accumulate, they are invested in some way, for example, in bonds issued by the importing country. In this way the currency reserves earn some interest, rather than sit as paper scrip in a vault. Beyond a certain point, however, accumulated reserves will be perceived as ‘excessive’ by some in the exporting country, in that they would prefer to purchase something with this accumulated savings instead. In this case they have a choice: Either they can purchase more imports from the net-importing country, thereby narrowing the trade imbalance, or they can exchange their reserves with another entity at some foreign-exchange rate. For this reason, other factors equal, as reserves accumulate, the reserve currency will depreciate in value. As trade imbalances and reserve balances grow, so does the natural downward pressure on the value of the reserve currency as described above. This leads to what Belgian economist Robert Triffin called a ‘dilemma’: For unbalanced trade to continue to expand, the supply of reserves must increase. Yet this implies a chronically weak reserve currency, which leads to price inflation. Indeed, under the Bretton Woods system of fixed exchange rates, the supply of dollar reserves

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contribute to higher asset and consumer price inflation around the world. The money then gradually permeates the entire economy. Triffin was pointing out something rather intuitive: Printing a reserve currency to pay for net imports is akin to owning an international ‘printing press’. by association. something that should happen in any case. the Cantillon effects discussed earlier result in wages converging downward rather than upward. it will instead stimulate credit growth abroad and. eventually find that. with the US a large net importer and issuer of the dominant reserve currency. and at the end you have workers the world over who receive the new money last. prior to the First World War. price inflation increased and. eventually. between trading partners as their economies become more highly integrated. grew and grew. but all that is really happening here is that US wages end up converging on those elsewhere. implying a global wealth transfer from ‘owners’ of labor— workers—to owners of capital. this seignorage income is partially if indirectly sourced from abroad. Greater global wealth disparity is the inevitable result. some degree of eventual. If you want workers around the world to get fairer compensation for their labor. don’t raise them. where nominal wage growth is likely to accelerate. a pre-classical 18 th century economist. via the external accounts. their accumulated savings are being de facto ‘diluted’ and the purchasing power of their wages diminished. Federal Reserve notes pay no interest. this non-neutrality of money implies that an issuer of a reserve currency is the primary beneficiary of the ‘Cantillon effect’. driving up the overall price level. the problem is trade distorted by monetary inflation. eventually making US labor relatively more competitive. Another way to think about the benefits of issuing the reserve currency is that it generates global seignorage income. perhaps some are—but they are barking up the wrong tree. Over time. this led to a run on the official US gold stock and the demise of that particular monetary regime. after it has placed general upward pressure on prices. But to the extent that this wage convergence process is driven by reserve currency inflation.[2] But in a globalised economy. Those last in line for the new money. So-called anti-globalists disparaging of free trade are thus not necessarily barking mad—well. Although the British pound sterling was the dominant reserve currency. non-inflationary economic integration. The problem is not free trade. who use the new money to accumulate more global assets. this will impact the relative competitiveness of other economies. However. that money is not ‘neutral’: New money enters the economy by being spent.com/contributors/john-butler/curse-reserve-cur. it was not possible to print an endless amount of pounds to pay for endless imports. primarily everyday savers and consumers. But the first to spend it does so BEFORE it begins to lose purchasing power as it expands the existing money supply. That may sound like good news. by being last in line for the new money. the use (or abuse) of which causes net global monetary inflation and. they can be used to purchase assets that DO bear interest... eventually.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www.financialsense. rather than natural. While hailed as an important insight at the time. over time. Extropolated to the global level. And if you also want them to have access to the largest possible range of consumer goods at the lowest possible cost. The Fed may print and print to stimulate domestic credit growth but if that printing does not get traction at home. shut down the reserve currency printing press. as one European central bank after another sought to exchange its ‘excess’ dollar balances for gold. and Unbacked As it happens. the bulk of the world was on the classical gold standard. 'Cantillon Effects' and the Non-Neutrality of International Reserves Now let’s combine Triffin’s insight with that of Richard Cantillon. No wonder the Fed always turns a profit: It issues dollars at zero interest and collects seignorage income on the assets it accumulates in return. remove trade restrictions. Reserve Currencies: Gold-Backed.[3] This becomes particularly notable in the event that domestic credit growth is weak relative to abroad. realized price inflation. First in line for the new international money are the owners of capital in the reserve issuing countries. as external reserve 2 of 10 12/2/2012 11:58 AM .

) Clearly there is growing dissatisfaction with the current set of global monetary arrangements. in 1979-80. Under the Bretton Woods system. Valery Giscard d’Estaing. or a curse? The answer may seem obvious. currency balances were regularly settled in gold. France or any participating country for that matter could choose to exchange its accumulated dollars for gold. China. isn’t it nice to hold the power of 3 of 10 12/2/2012 11:58 AM . where. fiat dollar today. who is far more popular with the electorate in his country than most western leaders are in theirs. This implied an increase in workers’ purchasing power and standards of living. France was a full member of NATO. arguably the greatest tragedy ever to befall western civilization.[5] Historians will note that once upon a time. The Reserve Currency Curse In Disguise Let’s now turn to the question posed at the beginning of this report. in criticism of the International Monetary Fund (IMF): The IMF extends aid on a who. but they aren’t laughing. Is reserve currency status a blessing. Just last week. please turn to the extensive literature on the causes and consequences of WWI.) Returning to the present. While the mainstream historical economic narrative about this period is that the Fed resorted to punatively high interest rates to fight the high rate of domestic price inflation.. have already made numerous official. So while there are certain parallels between sterling’s previous. yet currently a member of NATO and thus at least a nominal US ally. The BRICS (Brazil. unsustainable trade imbalances. historically a ‘swing-state’ in its global orientation. Hardly a week goes by without some senior official in an up-and-coming country rich in natural resources or with competitive labor costs criticising US monetary policy while suggesting that gold should play a greater role in international monetary affairs. Moreover. which were characterised by mild consumer price deflation. public statements to this effect. which allow the US to print the global reserve currency to pay for imports.financialsense.[4] One can only imagine what is being discussed in private. that the air of crisis at the time had an important international dimension.. gold-backed role as a reserve currency and that of the unbacked. quite similar monetary concerns were expressed openly by Turkey. Industrial wages were generally stable through these decades. the eventual exercise of this choice to exchange dollars for gold by not only France but a handful of other countries led to a run on the US gold stock in 1971 and an end to the dollar’s gold convertibility. one look at the behaviour of the dollar in 1979-80 tells a different story. Prime Minister Erdogan. After all. there are even greater differences. had this to say recently. This is something to think about. For example. how and on what conditions basis. absent monetary inflation. India. and there was not a ‘Triffin Dilemma’ resulting in growing. are they going rule the world based on the exchange rates of that particular currency? Why do we not switch then to a monetary unit such as gold. which is at the very least an international constant and indicator which has maintained its honor throughout history.com/contributors/john-butler/curse-reserve-cur. now joined by South Africa). countries that have been exporting to the US and accumulating dollars in return are increasingly getting the joke. if the IMF is under the influence of any single currency then what. behind closed doors. but following President De Gaulle’s decision to challenge the dollar-centric Bretton Woods system in the mid-1960s. a contemporary of Robert Triffin. As predicted well in advance by French economist Jacques Rueff. Russia. The British pound thus held its value over time. (For those curious how such a stable international economic order could break down so completely in such a short period of time. an ‘exorbitant privilege’ as it was termed by another French president. as did other currencies on the gold standard. there were no insidious Cantillon effects taking place. FOMC meeting transcripts also reinforce this arguably ‘revisionist’ view that the dollar’s reserve status was at risk.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www. there erupted a series of dollar crises that culminated in the collapse of the Bretton Woods regime in the early 1970s. individually and together. history has already nearly repeated once before. Is history about to repeat? (Incidentally.

but what comes next? The floorboards? The walls? The roof? For those who think that a capitalist. but in fact sets the price of money by decree at an artificially low level so that there is little incentive to save? Well. currency wars or other forms of economic conflict are the inevitable result. Well here you see the empirical evidence: Holding the ‘price’ of money—the interest rate—artificially low over a sustained period of time leads to a shortage of savings. as it were? On the surface yes.com/contributors/john-butler/curse-reserve-cur. actual wars follow. then the corruption thereof has a deleterious international economic impact. Net of Depreciation. outside of wartime. By corollary. But what of an economy that merely pretends to be capitalist and free market. but what lies beneath? As Lord Acton is purported to have said. therefore. US imports would become more expensive and economic growth 4 of 10 12/2/2012 11:58 AM . are wrong. a lower standard of living. the global printing press? To enjoy relatively low borrowing costs? To possess the ‘exorbitant privilege’. market-determined price for a given product. if an authority mandates a price ceiling below the natural. take a look. when an economy begins consuming its own capital in a desperate and counterproductive attempt to maintain its previous standard of living. Austrian economist Ludwig von Mises described capital consumption as akin to “burning the furniture to heat the home. this is what happens: Negative net investment! US Domestic Investment. as the dollar is not convertible into gold. for what it's worth. or the entire theory. power tends to corrupt. But there is no reason why central banks around the world can not diversify out of dollars and into gold.. there could not be a run on the official US gold stock. Trade wars.. the ‘benefits’ of lower borrowing costs accruing to the issuing country appear to result in overborrowing and overconsumption relative to the rest of the world. And to the extent that a power that is held nationally is exercised internationally. Alternatively. the reserve currency curse is recognized only too late. they don’t.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www. it may be simply unwilling to admit that the models.financialsense.” Sure. the US Fed may still honestly believe that its neo-Keynesian models are right. In some cases. it might work for a time. eroding the domestic manufacturing base over time and widening the rich-poor gap to levels that are socially destabilising. like Galileo’s clerical inquisitors. In the case of an unbacked reserve currency. capital consumption and. In others. But in all cases. although they also admit they have little idea what to do about it other than to shoot in the dark—something that is not exactly reassuring.[6] The Turkey In the Gold Mine Today. % of GDP It is highly intuitive to reason that. something that would have much the same result: The dollar would decline versus gold and real assets generally. free-market economy would never consume its own capital. less of it will be produced and a shortage will result. Notwithstanding basic economic common sense and clear evidence as presented above. The International Monetary Fund. has already determined that its models are flawed. absolute power corrupts absolutely. you may be right.

a new equilibrium. once destabilized by changing conditions or incentives. as sovereign wealth funds occasionally operate in effective if unofficial collaboration with their respective central banks.. not tactical gold buying. they are going to carry out that mandate. if history is a guide. the sovereign wealth funds of these countries are under no such obligation and. South Korea. That the agents swapping their dollars for gold happen in some cases to be price-insensitive official institutions is just one mechanism by which a global shift out of paper into hard assets is taking place. First. Another is the growing official collaboration on monetary and other economic matters by the BRICS. then as the world moves away from the current. The Golden Revolution (available here). This is strategic. Game theory is highly instructive as to how international policy regimes.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www. the current international monetary regime is clearly unstable. Yes. as it were. Turkey. Mexico. China. 5 of 10 12/2/2012 11:58 AM . many central banks are accumulating gold. Turkey may be only one of several countries monetizing gold for use in importing Iranian gas or other goods. there are also two important theoretical points to consider. in the way that the US dollar provided an obvious alternative to the pound sterling following WWI. Turkey and Indonesia. Brazil. but as discussed above. as the dollar’s role diminishes. Turkey’s recent admission that it's paying for imports of Iranian natural gas with gold in order to avoid US sanctions may seem a small. As it happens. I don’t pretend to know exactly what is going to happen from one day to the next. This is just one of many reasons why the gold price is going up. it is highly unlikely that. sometimes in response to seemingly insignificant developments. concludes with a discussion about why gold has by far the strongest claim to use as the future international monetary reserve replacement for the dollar. there is no existing fiat currency alternative to the dollar at present. Second. If they are instructed by their political leadership to diversify their reserves out of dollars in some amount. but within the larger context it could have a disproportionate impact. The most fundamental is simply that the values of currencies such as the dollar are going down as a result of endless quantitative easing (QE) or other forms of monetary expansion. you can’t help but notice that the game is changing. They apparently do trust in gold. given the increasingly obvious breakdown in cooperation in international monetary relations.com/contributors/john-butler/curse-reserve-cur. can suddenly shift to. profit-maximizing entities in the same sense as independent private investors. regardless of the price. there could be a universal agreement about how to construct or implement a global currency alternative to the dollar. While historical precedent is important. At first glance. In this case. Then there are the various bilateral currency arrangements between an increasing number of countries that allow them to reduce dependence on the dollar for bilateral trade. the BRICS and a handful of other nations don’t trust the IMF to act in their national interest. these official gold buyers are not as price sensitive. in the aftermath of a substantial dollar devaluation.financialsense. there is always a chance that this represents the proverbial ‘tipping point’ from one equilibrium to another. it is highly likely in my opinion that there is much more official gold accumulation taking place than is officially reported. the IMF has proposed precisely this and (no surprise here) has put itself forward as the bureaucracy that could manage it. insignificant development by comparison.[8] Indeed. When countries that comprise in aggregate about 1/3 of all global trade flows express dissatisfaction with the dollar and the IMF. As a canary signals danger in a coal mine.[7] While central banks must report their gold reserves to the IMF. or to the other side. just as was the case during the 1970s. until that policy changes. When a medium-sized player such as Turkey moves from one side of the game board to the middle. dollar-centric reserve standard system it will move to one based on mulitiple currencies. these developments are already underway. Central bank or other official forms of gold buying is but one aspect. Bangladesh. might Turkey be signalling something rather more significant for international monetary relations? Quite possibly. But when you step back and see the larger picture of one country after another expressing disapproval with the dollar reserve standard. India. including Russia. would be highly ‘stagflationary’. Kazakhstan..[9] Why gold? Part I of my book. According to recent reports. yet with some degree of explicit gold backing for major currencies. As they are not free-market. or collapse into. or at some regular rate.

but these things are politically unpopular. as gold itself provides the trust. in a normal world at least. where the government has recently threatened to nationalize corporate assets in the event that their owners seek to reduce capacity and fire workers in response to the economic slowdown well underway. but it seems a bit odd that these should determine the election result for the highest political office in a country founded on the principle that the federal government should stay out of social issues. the UK. Ireland). gold holds more than just a historical claim to a future role as international money. if they are not forthcoming. I have written variations on this theme many times but it seems entirely appropriate to revisit it again here: We do not live in a world in which financial asset prices are driven by sensible value judgements but rather speculation enabled and encouraged by policy makers in a growing number of ways. 6 of 10 12/2/2012 11:58 AM .. There are some things about which we can be relatively certain. My impression is that the election was fought primarily on social issues. I note that the political winds are now shifting decisively against those who would use the current crisis to centralize yet even more power in Brussels or in the ECB. even though the deficit remains near record highs and the so-called ‘fiscalcliff’ approaches. A series of corporate earnings disappointments and profit warnings was initially ignored but finally became so widespread across countries and industries that the selling pressure intensified sufficiently to reverse the big bull market that took place over the summer.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www. such sentiments make coordinated bailouts more difficult to implement. which might be rather a long time given the starting point. The answer to the question of what currency or currencies can provide the future international reserve is thus as paradoxical as it is elegant: Every currency. it will reinforce the stagflationary economic conditions already prevailing in the US and in many other countries. This is not exactly going to attract foreign investment into the country. or does so abruptly in a future financial crisis. In any case. European economic growth is going to be unusually weak as long as the deleveraging continues. would be expected to determine prices. If the dollar continues to gradually lose reserve currency status. Recent Developments In Financial and Commodity Markets At time of writing.com/contributors/john-butler/curse-reserve-cur.[10] However. At the margin. This can be seen at both the regional level (eg Catalonia. in anticipation of yet another round of global monetary stimulus that arrived in September. Applying a traditional. neither of the two presidential candidates in the recent election advocated even a small reduction in the size of the federal budget. or profit expectations.. if linked to gold. this will deal a serious blow to European equity markets. I am hardly omniscient and for all I know equity markets will begin to move right back up again for reasons that may have nothing to do with earnings.financialsense. value-based investment approach in this environment is fraught with peril. I suppose Americans are schizophrenic. Import prices will rise. Turning to Europe. Speaking of political winds. Scotland) and the national (eg Greece. Now I don’t want to belittle those who feel strongly about social issues. The ‘debate’ was so narrow relative to the vast scale of US economic problems that it seems a stretch to call it a ‘debate’ at all. there are also disturbing developments in France. global equity markets have corrected modestly lower from the lofty valuations seen in early October. Of course there are things that US politicians could do to encourage savings and investment rather than consumption. or anything else that. For example. Although I am hardly supportive of bailouts for weak euro-area sovereign borrowers (or their lenders. It provides a basis for mutually-beneficial international trade when trust in monetary stability is lacking. as many peoples seem to be. if you prefer). yet growth will remain subdued given that the capital base is being consumed. I expressed my concern with equity valuations back in October so I’m not exactly surprised by this development. however. and none. As a medium of exchange that cannot be printed or otherwise manipulated by any one country to somehow exploit another. One could be mistaken for thinking that the electorate is by comparision relatively unconcerned about the economy.

I know the conventional wisdom. why aren’t they particularly low instead? Sure in some countries. trailing P/Es and other classic valuation measures are essentially distressed.financialsense.. (As an aside. I would like to remind readers that. The ultimate response to uncertainty. but when it comes to the most overpriced bond markets of today.com/contributors/john-butler/curse-reserve-cur. during the stagflationary 1970s.rather than under-weight commodities in my portfolio. in a historical comparision. a general decline in commodity prices would be an indication that governments are finally backing away from inflationary policies. some of these are likely to do better than others in the current global climate and I take that into account when managing positions. including of course the dollar. Post-Script: A Brief Comment on Recent Developments In the Gold Market As the topic of gold and gold investing has featured regularly in the Amphora Report. any devaluation in these currencies is likely to have an even greater impact on bond holders than on those sitting in cash instead. then gold is likely to outperform in the event that such uncertainty continues to rise. such as Spain. I believe there are pockets of value in distressed corporate debt and would recommend that readers familiarize themselves with some of the instruments available for getting some diversified exposure. but as all good traders know. in practice it is not quite as simple as that. Yes. But today’s Spain is tomorrow’s… well. although it is true that misguided regulations or price controls can create artificial scarcity. Fortunately. Well I’m not holding my breath. emotions are distracting and dangerous.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www. inflation-adjusted terms. Commodities cannot be arbitrarily diluted. natural or man-made. Pick a country. there is no certainty that commodity prices are going to rise. is at constant risk of devaluation. They do not go bankrupt.. That leaves commodities. devalued or defaulted on. indicating good value. I fully expect governments to continue to implement misguided inflationary ‘solutions’ to economic problems themselves caused by inflation. What holds true for assets generally holds true for commodities specifically. any country. but if they don’t. I don’t know. that stock prices tend to rise with inflation. set the stage for a sustainable economic recovery built on savings. that if the primary source of uncertainty in the world is the very future of money itself. rather than on debt. it takes its bond market with it. this is unlikely to be the direct result of government action. stock market valuations in both the US and Europe are not particularly high. And therefore I am over. Turning to bond markets. When a currency devalues for whatever reason. the outlook is inextricably linked to what happens with currencies. of course. but then they can also perform rather poorly. UK gilts or Japanese government bonds (JGBs). Indeed. Now it is the case that.[11]) Cash itself. This has been unusually common of late. entirely through logic and reason. But much of investing remains a guessing game no matter what anyone tells you. That said. There are plenty of candidates. given the context. is to diversify across a broad range of assets. one doesn’t need to feel emotionally about gold to understand. such as those for US Treasuries. I am sometimes asked to comment on developments in the gold market. I do have a soft spot for gold. regardless of currency of denomination. perhaps the single most important one there is. I regard it as highly unlikely that this thinking will change absent a future financial crisis that not only results in the death of the neo-Keynesian economic paradigm but also one that shows the current economic policy elite the door. Policymakers have made it abundantly clear that the value of cash is a policy tool. So notwithstanding the modest correction of late I believe it is still too early for a general return to the equity markets. (That said. But really. Yes. something that would. including me. They cannot be created by policymaker whim. in particular in real. eventually. don’t you ever find it ironic that those who shout the loudest that gold is but a ‘barbarous relic’ are those who live and work atop the bullion vaults under the NY Fed or the Bank of England. due to Germany’s decision to audit a portion of its gold holdings held abroad and Ecuador’s announcement that it will follow Venezuela’s initiative from last year and repatriate at least some portion of its gold reserves held in New York and London. for example?) 7 of 10 12/2/2012 11:58 AM . which is price supportive. They may not be the stuff that powers Wall Street and credit creation but that is where the excessive leverage in the global financial system resides. Yes. German Bunds. major stock markets did not perform well.

[11] For a discussion of distressed investing. I leave that to the reader to decide. It is not. please see WHY BANKRUPTCY IS THE NEW BLACK. available here. as a safe and reliable jurisdiction. following Hugo Chavez’s decision to repatriate Venezuela’s gold reserves: Venezuela’s decision to take delivery of its gold places additional focus on the unique role that physical gold plays in the global economy. indirectly back their currencies with gold. including those that were part of the deal the Fed made with JP Morgan regarding its takeover of failing investment bank Bear Stearns. on the contrary. in this way. 3 (April 2012) available here. [10] Please see A VICIOUS CYCLE. Bangladesh and Kazakhstan have bought gold on the open market. Why? If there was growing faith in the dollar-centric global financial system. 3 (October 2012). 3 (April 2012).. [7] Please see the most recent statistics from the World Gold Council. although some Keynesians argue that this income is ‘real’.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www. Amphora Report Vol. [5] A recent article in the Turkish press detailing his comments on this topic can be found at the link here. Note that the amount of seignorage income generated rises in proportion to the devaluation of the dollar relative to the currencies of US trading partners. smaller countries could always peg their currencies to that of a major trading partner and. is also beginning to erode. Resources [1] I previously discussed at length the causes and consequences of the dollar’s loss of reserve currency status in IT'S THE END OF THE DOLLAR AS WE KNOW IT (DO WE FEEL FINE?). 8 of 10 12/2/2012 11:58 AM . rather than leave it in US custody. In recent months. [9] For convenience purposes.com/contributors/john-butler/curse-reserve-cur. it has since purchased a broad range of assets. [4] For a thorough discussion of the official BRIC position on these matters please see THE BUCK STOPS HERE: A BRIC WALL. Amphora Report vol. Amphora Report Vol. as a safe and reliable jurisdiction for global commerce. Well.[12] Are we to interpret recent developments in the gold market as signs that “confidence in the US itself. it would be a sign that confidence in the US itself. as it happens. please see THE KEYNESIANS’ NEW CLOTHES. Others no doubt continue to accumulate gold less overtly. Amphora Report vol.” is eroding? As with a handful of other things discussed in this report. available at this link here. 3 (2 November 2012). The link is here. the central banks of Mexico. However. That devaluation increases income is a simple accounting identity. Should more countries line up to take physical delivery of their gold. I have long held that the act of physical repatriation of gold held on a custodial basis abroad is of more than just symbolic importance.. [6] For a discussion of the IMF’s recent reconsideration of some of their economic forecasting models.financialsense. [8] This was reported by Dow Jones Newswires and is available at this link here. 2 (May 2011). As I wrote in an Amphora Report back in late summer 2011. available here. this trend is a clear indication that global confidence in the dollar continues to erode. South Korea. The link is here. It is inflation. would central banks be accumulataing gold reserves at the fastest pace since the 1970s? No. [3] The Fed would be earning seignorage income directly rather than indirectly were it to purchase interest-bearing foreign securities instead of domestic ones. [2] Prior to the global financial crisis of 2008 the Fed purchased primarily US government bonds. Amphora Report vol.

be taken to reestablish gold as money. prepare. author of Sustainable Wealth "The Golden Revolution is another indispensable step on the road map back to sound money. Enlightened investors who blaze the trail will likely reap the greatest reward.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www.. analysis." —James Rickards. John Butler′s experience of the modern ′fiat′ banking world. The Golden Revolution is a useful and timely contribution to the growing literature on gold and gold standards in monetary systems. Financial Reckoning Day. author of the New York Times bestseller Currency Wars: The M aking of the Next Global Crisis "In The Golden Revolution. finance and society is extraordinarily complex. this book provides necessary light to keep you headed in the right direction. And on Facebook HERE." —Axel Merk. He breaks the book into a long series of essays on particular aspects of gold that the reader can take as a whole or in small bites. [12] THE BUTTERFLIES OF AUGUST." —Peter Schiff. Amphora Report vol. Euro Pacific Precious Metals.. I highly recommend it. this is the book to read. combined with his understanding of the virtues of a disciplined monetary system. M essiahs and M arkets More Praise for THE GOLDEN REVOLUTION: "John Butler has written an indispensable reference on the subject of gold as money.financialsense. And if you′re wondering what comes next. Merk Funds. The link is here. 2 (September 2011). Find THE GOLDEN REVOLUTION ON Amazon HERE. and act. For those still wandering in the dark. Monetary economics and its interrelationship with geopolitics. and surely will. author of the New York Times bestsellers Empire of Debt. and M obs. He has taken complexity and given us simplicity. allow for genuine insight into the practical steps that could. and economics that the reader will find useful in understanding the use and misuse of gold standards over the past century. "John Butler provides much illuminating detail on how the world′s monetary system got into its present mess. Cheviot Asset Management "Ex scientia pecuniae libertas (out of knowledge of money comes freedom). join the Golden Revolution." —Ned Naylor–Leyland. and author of The Real Crash: America′s Coming Bankruptcy—How to Save Yourself and Your Country "John Butler′s historical treasure trove empowers the reader to understand.John has used his exemplary knowledge of money to lay out a cogent framework for the transition of society based on fiat money to a more honest society forged by gold. To have a chance to emerge unscathed from financial turmoil.com/contributors/john-butler/curse-reserve-cur. host of The Peter Schiff Show. John Butler makes a powerful case for a return to the gold standard and offers a plausible path for our nation to get there." —Bill Bonner. but he has managed to assimilate a vast array of 9 of 10 12/2/2012 11:58 AM . It is technical yet accessible at the same time. I have. CEO. Investment Director MCSI. His book is a combination of history.

Hinde Capital Source: Amphora Report Print Like 23 Tweet 15 2 About John Butler John Butler Chief Investment Officer at Amphora.amphora-alpha.com/contributors/john-butler/curse-reserve-cur.9907 63 Curzon Street London W1J 8PD john." —Ben Davies.3939 The opinions of the contributors to Financial Sense® do not necessarily reflect those of Financial Sense.financialsense.487. CA 92150-3147 USA 858. or its parent company.The Curse of the Reserve Currency | John Butler | FINANCIAL SENSE http://www..com http://www.20..7659. PFS Group. PO Box 503147 San Diego. Share RSS Podcast Facebook Twitter YouTube View mobile site 10 of 10 12/2/2012 11:58 AM . information and distill it in a simple and thoughtful framework. its staff. That is an art many academic writers never achieve. Atom Capital Primary Tel: +44.butler @ amphora-alpha.com John Butler Archive 11/08/2012 10/16/2012 10/02/2012 09/18/2012 08/02/2012 07/24/2012 06/25/2012 06/15/2012 05/18/2012 05/04/2012 The Keynesians’ New Clothes A Tweet Too Far? A Vicious Cycle Par for the Pathological Course The Tale of Jack the Pie-Maker Caught in a Debt Trap Breaking News: Regulators to Classify Gold as Zero-Risk Asset From Deflation Push to Inflation Shove The Canary in the Gold Mine John Butler. cofounder and CEO. The Golden Revolution Sponsored Sponsored Finding Your Currency Gold And Silver Bullion Buy Gold And Silver Investing In Gold Gold Bar Gold And Silver Prices Gold Bullion Bars Gold Spot Price Gold Dealers Contact Us | Invest with Us | Copyright | Terms of Use | Privacy Policy | Site Map | Contributor Login | FS Archive Site © 1997–2012 Financial Sense ® All Rights Reserved.