Clearing Up my last post
The point I was trying to make is first that the banking system, which started on gold as the basis for extending credit then transformed to a system which included gold and government debt as the basis for extending credit. This relationship change caused the value of the dollar to actual gold to diminish at a rapid rate. So as more dollars were introduced into the banking system the dollar was really held up by the promise of future taxes (government debt).
By the time World War 1 had ended the primary source of bank reserves was in fact government debt instead of gold. Gold could still be used for international settlements between countries, but these various countries were exerting economic, military, and financial pressure on each other to stop this. The US was still technically on gold, but all countries, including America were inducing the general public from using gold coins in everyday use. This is why central banks would only redeem their currency in gold bullion and no longer in gold coins.
The last point is the similarity between post-WW1 England trying to keep world financial dominance by putting the rest of the world on a British pound sterling standard and the US dollar standard. Both situations are similar in how the world monetary system was and is structured. In post-WW1 the British pound sterling was used as the basis for foreign banks to extend credit while today it is the US dollar.
I hope this makes things clearer. I also need criticism of my work. It helps me to improve and gives me clues on how to make my writing better.
Chromatic Dispersion
Banking, Derivatives, and Systemic Risk
http://bankdersysrisk.blogspot.com/
By the time World War 1 had ended the primary source of bank reserves was in fact government debt instead of gold. Gold could still be used for international settlements between countries, but these various countries were exerting economic, military, and financial pressure on each other to stop this. The US was still technically on gold, but all countries, including America were inducing the general public from using gold coins in everyday use. This is why central banks would only redeem their currency in gold bullion and no longer in gold coins.
The last point is the similarity between post-WW1 England trying to keep world financial dominance by putting the rest of the world on a British pound sterling standard and the US dollar standard. Both situations are similar in how the world monetary system was and is structured. In post-WW1 the British pound sterling was used as the basis for foreign banks to extend credit while today it is the US dollar.
I hope this makes things clearer. I also need criticism of my work. It helps me to improve and gives me clues on how to make my writing better.
Chromatic Dispersion
Banking, Derivatives, and Systemic Risk
http://bankdersysrisk.blogspot.com/
posted by Chromatic Dispersion at 10/09/2005 07:47:00 PM
3 Comments:
I think the point you are leading up to regarding exchange rate regimes is very useful. We are currently in Bretton Woods II - with the dollar as the reserve currency of the world.
The major question as we face major political pressure at home to inflate the dollar is how the rest of the world will react.
Just this week Snow and Greenspan are headed to China to order (beg?) the Chinese to revalue their currency against the dollar to help our economy begin its adjustment vis a vis the rest of the world. This will actually accelerate the increase of real interest rates in the USA which the Government seems to desire but ultimately will just accelerate the collapse of the real estate bubble and the financial system with it.
I think it would be extremely useful to analyze throughout history the transition period where an Empire (England in WWI, etc.) began to decline and the effects on its currency. It seems to be a game - of wanting everything at once instead of realizing that you can pursue at most one economic objective at any given time.
Please elaborate more on England's transition during WWI and the actual mechanics of the decline. I find your posts very informative but have been unable to read much lately as very busy with work/school.
Regards,
BG
I will post this answer as I have had a few request for it.
I shall give you a much more clear and detailed answer soon. It takes time for me to look up the acutal number and make sure they are correct.
Chromatic Dispersion
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