World Money and Hyperinflation

This world money has existed for some time, but it’s about to become a lot more important.

In 1944, John Maynard Keynes proposed a form of world money, which he called the “bancor,” at the Bretton Woods international monetary conference.

In 1961, Nobel Prize winner Robert Mundell said, “the optimum currency area is the world,” laying the theoretical foundation for world money in his classic article “A Theory of Optimum Currency Areas.”

In March of 2009, U.S. Treasury Secretary Timothy Geithner supported greater issuance of Special Drawing Rights (SDR’s) at the depths of the financial crisis.

And as recently as October 2015, the former undersecretary general for economic and social affairs (ECOSOC) of the United Nations, José Antonio Ocampo, wrote an Op-Ed calling for new issues of SDRs with a disproportionate share going to emerging markets.

The list of prominent international monetary elites calling for greater use of SDRs as world money keeps growing. It’s critical you to understand this new trend.

The SDR has the power to reduce the dollar to the status of a local currency no different than the Mexican peso. Understanding SDRs will also help you avoid losses from inflation and benefit from new opportunities that will be created by their use.

Hyperinflation on the Horizon

Much has been written about the collapse of the dollar.

We define collapse as a spontaneous loss of confidence in the dollar as a store of value resulting in sudden hyperinflation.

The source of such hyperinflation is not money printing (that happened already) but the rapid turnover of money. Those who lack confidence in dollars as a store of value will quickly dump dollars for other assets.

In this scenario, the alternative to the dollar can be as familiar as gold or land. It could be one of the new digital assets such as Bitcoin. The dollar alternative could even consist of natural resources such as oil or water.

When it comes to hyperinflation, the alternative doesn’t matter that much…

What matters is that investors will dump dollars as fast as they get them. The resulting turnover (what economists call velocity) will feed on itself and lead to skyrocketing dollar prices. It is important not to think of hyperinflation as prices “going up” (although that is literally true).

A better understanding is that assets, goods and services have a constant real value, while the dollar itself is collapsing.

That dollar devaluation is the real source of “higher prices.”

After all, gold is gold, land is land and water is water.

When you see hyperinflation, you are really seeing the collapse of the dollar relative to everything that dollars can buy.


Jim Rickards
for The Daily Reckoning

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