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The rest of the world would be at the end of that string and the view of your "innocent" twirling would take on a whole new panorama. Two miles away from the center of the twirling one sees a never ending vista of obstacles rising and falling completely unpredictably and completely frighteningly. Whole economies would be instant winners one second, then instant losers the next. Just ask Iceland, Bulgaria, Ukraine and other nations who have gone bankrupt or who have had to ask for emergency loans from the IMF and the WB just to stay one step away.
The subprime crisis, which started exclusively in the United States, has turned whole nations into instant paupers. Unemployment is soaring worldwide. In France they've started a new trend, bossnapping, in order to keep their companies from massive layoffs. Banks from the UK to Argentina are failing at record rates. Small businesses around the world are collapsing at ever increasing volumes.
So what's the world to do?
Enter SDR
Special Drawing Rights are a basket of currencies that the IMF originally created in 1969 to help deal with the growing world economic expansion. It was felt that gold and the US dollar weren't enough to handle all future growth. The US dollar, the British pound sterling, the Japanese Yen and the Euro were going to be combined to facilitate this development. Well, President Nixon "nixed" that idea in 1971 when he took the dollar off of the gold standard.
But the SDR never went away. It's been kept as a mere accounting function over the years until this latest debacle. Now, the idea that one can use more than just the "twirling" US dollar as world trade is gaining steam faster than a locomotive shooting down the sides of the Grand Canyon at full throttle. Even the UN has taken to championing the cause and Russia, China, and other countries have already pronounced their approval.
The SDR is set up this way. The US dollar would be 44% of its overall value. The Euro would have 34%, with the British Pound and the Japanese Yen taking up 11% each for the remainder. In other words, trade would be performed in SDR units with its nominal value being composed of the stated exchange rate of the four denominations at the percentages above. It's a lot of mumbo-jumbo to say that the US dollar would have the biggest impact on the exchange rate of the SDR, followed by the Euro and the others. The twirling tether is still long and flailing, but it is now dampened by other currencies and not just subject to the whims of the Federal Reserve Bank and US roller coaster rules.
But this is where the story gets dicey. While the exchange rate would be performed in SDR units, the actual money used would have to be one of the four. Countries would still use a known currency as their exchange medium, but it wouldn't necessarily be the dollar, yet it would still be valued at its current SDR rate. This would mean that the US dollar would fall from its supremacy as the preferred currency. There would suddenly be a choice.
It is very conceivable that countries would start using the other three currencies in ever increasing amounts over time. Even though the US dollar is still found aplenty around the world, countries could decide to use it ONLY within their commercial transactions with the United States, and ONLY when they purchase commodities from the US. They could even demand that the US start paying them in one of the other currencies for their goods and services.
The flow of US dollars would suddenly become unidirectional. Dollars would continue to flow TO the US, but the US would be required to use pounds, euros or yen for their purchases of foreign goods and services. This would force the US to actually buy money to purchase goods for the first time since Bretton Woods. Rather than just firing up the printing press and creating trillions of dollars out of thin air, the US would be obligated to use its own goods and services to purchase currencies from other countries and then use those currencies to purchase goods and services from the rest of the world -- just like the entire rest of the world has been doing all along.
At this point in time, the impact is incalculable. The US has not had to actually use foreign currencies to any reasonable extent for over 60 years. It has been given a free ride complete with twirling pole and attachable string. This free ride has been abused so many times by the US that entire sections of libraries are replete with authors' recounts of the horrors that have resulted. Military abuses, economic chaos and disasters, and hegemonic government policy has been job one for the US since WWII. From the overthrow of democratically elected presidents like Salvador Allende in Chile and elsewhere, to economic crises in Brazil, Argentina, Indonesia and beyond, and passing through war after war in Vietnam, Iraq, Afghanistan and others, the US has used its unique world status to dominate everyone else and crush any and all opposition.
For these long 60 years there has never been a coordinated effort that could match the sheer strength or volume of the US economy, at least, not until now. The Chinese economy has been growing at a 10% clip for over ten years and this current crisis has only caused it to stumble a bit. It is now back on pace to continue its economic bullet train ride into the stratosphere and the other BRIC countries, Brazil, Russia, and India, appear poised to follow it. And they are clamoring for a change in the SDR rules with the Russian Ruble and Chinese Yuan to be added. This would only further weaken the role of the US dollar in the future.
To be sure, the US dollar will still be the number one currency for the near term and it would be nigh impossible to dislodge it before 2011 save for an economic disaster greater than what we saw in 2008 which would collapse the rest of the American financial institutions. This, however, would also cause a worldwide economic collapse because so much of the world economy is still in US dollars. Financial chaos would surely ensue which is counter to the desires of those who run the show. They want more money and more power, not more uncertainty.
Nevertheless, peering beyond the immediate, it appears that the writing is on the wall. The rest of the world has finally cracked the dollar ceiling and the fissures are increasing and widening. The hegemonic rule of the dollar is nearing its end and along with it, the role of the US as the dominant purveyor of global war and destruction.
Democratic countries will be free to follow the will of their people and not the will of Wall Street. The fear of US intervention will decrease substantially and the need for ever increasing military arms to protect one's country from possible US intervention through third country proxies will be greatly reduced. The ridiculous "need" to own hundreds of military bases around the world will disappear. The jackboot of American oppression will finally lose its tenacious hold of the rest of the world and the US will be able to, once again, turn its attention to internal issues like the homeless, poverty, illiteracy and the general welfare of its citizens.
Perhaps this will be the beginning of more peaceful times as the last superpower returns to the ranks of the rest of the world and becomes a civil member once again. One can only hope.
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