New World Order, SDRs & Silver Vigilantes

China calls for ditching dollar as reserve currency

SHANGHAI - China has called for ditching the U.S. dollar as the international reserve currency, sweeping away a decades-old system to stabilize the world monetary climate and protect its massive foreign exchange reserves.

People's Bank of China Governor Zhou Xiaochuan said he wants to replace the dollar, installed as the reserve currency after World War II, with a different standard run by the International Monetary Fund, or IMF.

China, the top holder of U.S. Treasury bonds with $739.6 billion as of January, earlier expressed concern over its investment as the world's largest economy battles a deep recession.

"The outbreak of the crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system," Zhou wrote in an essay posted on the bank's Web site Monday. Zhou's comments come ahead of the G20 summit from April 2 in London, where world leaders and international organizations including the IMF are to discuss reforming the financial system.

He suggested the IMF's Special Drawing Rights, or SDR, could serve as a super-sovereign reserve currency as it would not be easily influenced by the policies of individual countries.

Russia has also proposed the summit discuss creating a supranational reserve currency. The IMF created the SDR as an international reserve asset in 1969, but it is only used by governments and international institutions.

A gradual process

"The reform should be guided by a grand vision and start with specific deliverables," Zhou wrote. "It should be a gradual process that yields win-win results for all."

However, China's proposal was unlikely to lead anywhere because the SDR is not a currency system backed up by a government, independent Shanghai-based economist Andy Xie said.

Xie said the proposal was probably a protest aimed at Washington's plan to buy one trillion dollars of its own debt, diluting the value of China's dollar reserves and raising fears of inflation.

"It's a sad situation: China is America's banker. America owes so much to China, but it's not afraid of China," he said. "China is America's hostage. It's not the other way around."


Truth is stranger than fiction in the world of fiat currencies and socialist, authoritarian governments.

The idea of a super sovereign fiat currency (SDRs)to replace the failing US dollar as reserve currency is ludicrous.

George Soros would be overjoyed with China's proposal as he has pushed for SDRs as reserve currency for years. But the question of who would determine how much currency to produce has not even asked anywhere in the mainstream media.

The only way to implement such a measure would be to have every country relinquish their ability to produce their own currency to allow the replacement SDRs (let's call it a Super Euro) to take their place. Then, another layer of government would be added above the federal level of all nations to manage global financial affairs, interest rates and currency production.

What nation in its right mind would agree to such an idea?

What kind of international crisis would be so enormous that governments would voluntarily give up the control of national currencies to embrace a global currency/Super Euro over which they would have little influence?

Given the current sovereign debt crisis in the Eurozone, we can hope that our national leaders will reject the idea of an international fiat currency and instead each nation move toward a gold or gold and silver (bi-metal) backed currencies.

When one considers the extreme resistance silver and gold have show to bear raids lately, it appears the silver vigilantes just may succeed in taking down the house of JP Morgan.

Note the bear raid in blue during COMEX expiration day. But today, the green line shows silver recovering since the bear raids are no longer sticking.

The silver vigilantes have done the world a great favor. They are exposing the deception of the derivatives markets.  Once the silver market decisively breaks above $50, in my view the short sellers are finished.  Then, depending on how much QE is added to the Fed's bloated balance sheet, precious metals are likely to soar to lofty heights.

This is likely the first of many derivative deceptions that will be undone in the coming months. 
The bond market vigilantes have not yet had their day, but it is coming, soon.


  1. Mr. Bailey, can you be so kind to inform me when is the next end of the world? I don´t want to miss the train, you know.

  2. Sorry to disappoint you Manuel, no end of the world in sight.
    Gloomy financial forecast seems to be holding up. I'm still bullish on precious metals and bearish on fiat currencies, although the US dollar could be poised for a good bounce soon.

    Good trading.



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