IMF & WEF Call For Global Reset - “A New Bretton Woods Moment”

On 15 October the head of the IMF, Kristalina Georgieva, delivered a speech that pricked the ears of those actually listening titled “A New Bretton Woods Moment”.  That this was delivered nearly 50 years after Nixon ended the gold peg of the Bretton Woods agreement has not been lost on some.  As Georgieva opened:

“Reflecting on the dramatic change in the world over the last year, I paid a visit to the Bretton Woods, New Hampshire, where 44 men signed our Articles of Agreement in 1944. Our founders faced two massive tasks: to deal with the immediate devastation caused by the War; and to lay the foundation for a more peaceful and prosperous postwar world.”

Those 44 leaders from around the world agreed to a currency reset that saw a partial return to the gold standard via the US dollar after it was effectively abandoned by the British.  Under Bretton Woods the US dollar became the reserve currency linked to gold valued at $35/oz.  In 1971, President Nixon ‘temporarily’ suspended the convertibility to gold (as the US was losing its gold hand over fist as the world lost faith in the USD) and so began the greatest credit cycle in history.  We greedy, politically driven humans no longer had the discipline of a gold standard and boy have we gone hard.

And so here, nearly 50 years later, we appear to be nearing a terminal juncture again, just as all Fiat currencies beforehand have.  Indeed 50 years is at the upper end of how long these currency instruments last.

Back to our keynote speaker at the IMF:

“Today we face a new Bretton Woods “moment.” A pandemic that has already cost more than a million lives. An economic calamity that will make the world economy 4.4 % smaller this year and strip an estimated $11 trillion of output by next year. And untold human desperation in the face of huge disruption and rising poverty for the first time in decades.

Once again, we face two massive tasks: to fight the crisis today— and build a better tomorrow.”

And:

“We have seen global fiscal actions of $12 trillion. Major central banks have expanded balance sheets by $7.5 trillion. These synchronized measures have prevented the destructive macro-financial feedback we saw in previous crises.

But almost all countries are still hurting, especially emerging market and developing economies. And while the global banking system entered the crisis with high capital and liquidity buffers, there is a weak tail of banks in many in emerging markets. We must take measures to prevent the build-up of financial risks over the medium term.

We face what I have called a Long Ascent for the global economy: a climb that will be difficult, uneven, uncertain—and prone to setbacks.”

And her solution:

“Beyond this, where debt is unsustainable, it should be restructured without delay. We should move towards greater debt transparency and enhanced creditor coordination. I am encouraged by G20 discussions on a Common framework for Sovereign Debt Resolution as well as on our call for improving the architecture for sovereign debt resolution, including private sector [you, dear reader] participation.”

What that means is (deliberately) unclear.  It may however be instructive to look at history again.  Jim Rickards talks to the transition of reserve currency last time when the USD took over from the UK Pound Sterling:

“If you want to see where the dollar is ultimately heading, you should look to the U.K. pound sterling. It had previously held the dominant reserve currency role starting in 1816, following the end of the Napoleonic Wars and the official adoption of the gold standard by the U.K.

Many observers assume the 1944 Bretton Woods conference was the moment the U.S. dollar replaced sterling as the world’s leading reserve currency. But, that replacement of sterling by the dollar as the world’s leading reserve currency was a process that took 30 years, from 1914 to 1944.

The period from 1919–1939 was really one in which the world had two major reserve currencies — dollars and sterling — operating side by side.

Finally, in 1939, England suspended gold shipments in order to fight the Second World War and the role of sterling as a reliable store of value was greatly diminished. The 1944 Bretton Woods conference was merely recognition of a process of dollar reserve dominance that had started in 1914.

Like the pound sterling, slippage in the dollar’s role as the leading global reserve currency is not necessarily something that would happen overnight, but is more likely to be a slow, steady process. The change is often so gradual that few notice it until it can no longer be denied.

A major creditor nation is emerging to challenge the U.S. today just as the U.S. emerged to challenge the U.K. in 1914. That power is China. The U.S. had massive gold inflows from 1914-1944. China has been experiencing massive gold inflows in recent years.

China has acquired thousands of metric tonnes since without reporting these acquisitions to the IMF or World Gold Council.

Based on available data on imports and the output of Chinese mines, actual Chinese government and private gold holdings are likely much higher than official listings. It’s hard to pinpoint because China operates through secret channels and does not officially report its gold holdings except at rare intervals.

China’s gold acquisition is not the result of a formal gold standard, but has been happening by stealth acquisitions on the market. They’ve used intelligence and military assets, covert operations and market manipulation. But the result is the same. Gold’s been flowing to China in recent years, just as gold flowed to the U.S. before Bretton Woods.

China is not alone in its efforts to achieve creditor status and to acquire gold. Russia has greatly increased its gold reserves over the past several years and has little external debt. The move to accumulate gold in Russia is no secret, and as Putin advisor Sergey Glazyev has said, “The ruble is the most gold-backed currency in the world.””

In other words the collapse of the USD hegemony has likely already begun and we are in the same transition phase that again led to an adoption of gold as a base for a new currency.  Rickards calculates that should gold form just 40% of that base in say an SDR or similar ‘global currency’ the price would need to be $14,000 per ounce. 

Alternatively should we not see such a currency shift but rather some other huge economic reset hinted at by the IMF, gold would inevitably benefit as the one true historic true monetary constant in this repeated phenomenon. 

Finally let us leave you with the words from the World Economic Forum’s Klaus Schwab just recently:

“‘Every country, from the United States to China, must participate, and every industry, from oil and gas to tech, must be transformed. In short, we need a ‘Great Reset’ of capitalism.’”