Last Updated: Friday - 09/24/2010

End of gold standard creates speculation

To understand the aim of Jubilee 2000 and the problem of international debt we have to take a look at the role of the dollar in the global economy. Everybody is working for the mighty Yankee dollar. Why?

In the beginning of this century gold was used as a guarantee of payment between importing and exporting countries. The problem was that gold was difficult to transport and expensive to mine. The real obstacle was that the amount of gold held in Fort Knox could not keep up with expanding world trade.

Gold was therefore replaced by paper money. The U.S. dollar, pegged at $35 per ounce of gold, became the international currency against which other currencies were measured.

Trade transactions are paid for in dollars and loans are counted in dollars. Currency fluctuations in the dollar influence the living standards of people in every corner of the world. After the Second World War the U.S. was practically the only country left with financial reserves and a modern production infrastructure in place.

Shortly after the war the U.S. exported large sums of capital as loans or investments such as the Marshall Plan. Europe needed to be resurrected so it could buy the products coming off the U.S. assembly lines.

In the 1950s the U.S. still earned enough to cover its expenses, but with the increasing competition of Europe and Japan and the financial sinkhole of the Vietnam War, the balance of payments lost its equilibrium. The monetary system depended on a stable currency.

When France and England demanded gold for their dollars in 1971, Nixon declared that dollars could no longer be exchanged for gold. With the gold standard abolished for the paper greenback, the solution to the economic crisis was simple: start up the printing press.

The flood of dollars that entered the market via trade deals and increased oil prices wound up to a great extent in the Western European banks. Low interest rates made it attractive for developing countries to take out loans, ostensibly to boost their own industrialization and development programs. That was the beginning of the international debt.

In 1979 the Carter government decided to slow down the flow of money because of the dollar devaluation. This tight money policy caused interest rates to rise. In 1980 Ronald Reagan began his gigantic arms race program and caused a further shortage. Interest rates shot up dramatically making repayment of debts out of reach.

Nixon's decree to terminate the exchange of one ounce of gold for $35 had undermined two fundamental principles of the 1944 Bretton Woods agreement: stable currencies and gold as the standard value. It had to be recognized that from now on we lived in a world of fluctuating exchange rates.

This was a boon for currency speculators and black marketeers prepared to gamble on the value of local currencies in relation to the dollar. Through instant computer link-ups, fortunes can be made with the push of a button.

Every day, as much as a trillion gambling dollars (one followed by 12 zeros) are moved around the world, causing economic collapse, destabalizing entire countries and driving innocent people into stark poverty, resulting in riots, ethnic conflicts and civil war.

This future trading is unrelated to production or added value and does not in any way contribute to the common good. Yet, this obscene form of highway robbery accounts for 95 per cent of global currency movements.

As we enter the year of jubilee, we might well ask ourselves: who should forgive whom?

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