Sunday, December 22, 2013

Two senior Telekom Malaysia officials to be charged with RM400,000 graft

Two senior executives of Telekom Malaysia (TM) will be charged in court next week for accepting more than RM400,000 in bribes.
The duo, a sales director and a sales manager, had allegedly received bribes through various dubious transactions since April two years ago.
Malaysian Anti-Corruption Commission (MACC) special operations director Datuk Mohd Jamidan Abdullah said investigations began in the middle of last year following a tip-off that officials of a TM Bhd subsidiary were involved in corrupt practices.
"Their mode of operation was tracked through falsified documents involving a company that installed the VSAT KU BAND between 2010 and 2012," he said in a statement.
The sales director was arrested in April last year when the MACC was conducting further investigations. He was freed after having his statement recorded.
"The probe revealed that he was involved in accepting bribes amounting to RM260,000 through various transactions over a two-year period," he said.
Jamidan said the sales manager was found to have falsified documents with the intention to cheat, such as using invoices of other firms to make claims from the TM subsidiary.
Through his clandestine activities, the manager is said to have made RM230,000 which was deposited in his bank account.
Jamidan said the manager was arrested a few days ago when he was called to the MACC office for further investigations.
"The MACC has completed its investigations and the two are expected to be charged in court next week," he said. – December 21, 2013.

The Heat suspended for changes in ownership, purpose, says Putrajaya

The Heat weekly was suspended because it did not inform of changes in its ownership and its purpose of being a business magazine, the Home Ministry said today.
"The Heat’s publication permit states that the outlet is required to inform the Home Ministry of any change of ownership.
"Furthermore, the permit provides for a weekly business magazine. However, these provisions were violated," the ministry said in a statement late today.
The weekly which was launched in September had suspended publication this week after getting a second show cause letter from the ministry.
The ministry said the first show cause letter required a response from the publisher but none was received.
A second show cause letter was sent but no official response was forthcoming.
Therefore, the ministry said The Heat was suspended until an official response is received from the publisher.
The ministry also insisted in the statement that the suspension was not related in any way to the news weekly's report on Prime Minister Datuk Seri Najib Razak and his wife Datin Seri Rosmah Mansor.
The first show cause letter was sent to the publisher HCK Media last week.
The weekly’s editor-in-chief David Lee Boon Siew had also been summoned to the ministry in Putrajaya and told to tone down its reports.
HCK Media had been given 14 days to reply to the show cause letter but the Home Ministry appears to have suspended the publication before it could reply to the letter.
In its front-page report in the November 23 to 29 issue headlined, "All eyes on big-spending PM Najib", The Heat had listed expenditures incurred on overseas trips and consultancy fees as well as Rosmah's use of a government jet to attend a conference in Doha, Qatar, where she received an award.
Opposition politicians, journalists and human rights groups have criticised Putrajaya over the suspension, saying its action contradicted the meaning of democracy.
PKR vice-president N. Surendran said the suspension of the news weekly was an act of personal vengeance by Najib and Rosmah as The Heat dared to criticise Putrajaya over its spending.
The National Union of Journalists and human rights group Lawyers for Liberty said the suspension contradicted the meaning of democracy.
"The media is the Fourth Estate and we have a responsibility to update the public, especially if there is any abuse or wrongdoing by the government," said NUJ president Chin Sung Chew.
LFL co-founder and adviser Eric Paulsen described Najib as a false democrat whose promises of reform has come to nothing. - December 21, 2013.

Yammie Nam admits that she was raped twice

22 Dec – Former actress Yammie Nam recently surprised many by revealing that she was raped during her blooming career in the 1980s.
As reported on Mingpao, the actress, who is now infamous for her erratic behaviour and mental issues, revealed in an interview that she was raped before – a statement that was previously talked about by her closest celebrity friend, singer Mary Yeung.
In the interview, Yammie revealed that almost thirty years ago, she was sexually-harassed by two men in the Hong Kong film industry. Although the names of both men were removed from the clip, it was revealed that one of them has passed away while the other raped her while they were in Singapore.
Yammie stated that while they were in the country to visit a film set, the said man, who was drunk at the time, stole her bedroom key and violated her.
The actress stated that while she was psychologically harmed by the abuse, she decided not to file a report to the police, thinking that it was unintentional due to his drunkenness. However, she did obtain a medical check-up afterwards.
Yammie stated that though there were no physical repercussions, she was mentally disturbed by it and even attempted suicide several times. She even showed her wrists that were covered with slit marks from being sliced with razor blades.
Meanwhile, Carina Lau, who also experienced a devastating incident when she was kidnapped back in the 1990s, was guttered upon hearing Yammie's story, and expressed, "I am very worried about her condition. I have talked to her a while back and she was in poor shape even back then."

Australia deli sued over 'semen' in bottled water

 An Australian woman is suing a deli after drinking bottled water that allegedly contained semen, lawyers said Friday, with claims that DNA showed it matched the owner of the business

An Australian woman is suing a deli after drinking bottled water that allegedly contained semen, lawyers said Friday, with claims that DNA showed it matched the owner of the business.
Alicia Cooper has filed a writ of summons in the District Court of Western Australia against the owner, who no longer runs the business, according to media reports that were confirmed by Slater and Gordon, the legal firm representing Cooper.
Among its accusations the writ states the owner knowingly placed the sperm in the bottled water and allowed its sale.
"Instantly I knew something was not right, I just knew," Cooper, who is seeking damages and medical expenses for the stress and depression suffered from drinking the water, told Fairfax Media.
"You don't think anything like this would happen to you. It was just so hurtful. It's been so humiliating," she added.
After Cooper lodged a complaint about the water with the health department in the city of Stirling, a sample was collected for testing and the results revealed it contained spermatozoa, the Fairfax report said.
A DNA sample was taken from the owner and testing confirmed his sample was a profile match for the sperm in the water.
Lawyers said the civil action was lodged after no criminal charges were laid. Fairfax quoted West Australian police as saying their legal advice was that "this incident, although serious, did not constitute a criminal offence".

This Ends In A “Planned Economy” – Bundesbank President

When the not particularly colorful Jens Weidmann, President of the emasculated Bundesbank and member of the ECB’s Governing Council, speaks, central bankers and money printers worldwide stuff wax into their ears.
“Caution – the euro crisis is far from over.”
Yup, that’s what he dared to tell the WirtschaftsWoche, though central bankers, politicians, and Eurocrats had declared the crisis over and done with a year ago. Wax being stuffed into ears could be heard around the world. He apparently hadn’t yet noticed that economic growth and prosperity for all had washed over the Eurozone, even if no one in the real economy could actually see it. Nevertheless, financial markets had been soaring.
The crisis “is currently less noticeable in the financial markets than a year ago,” he said, his eyes riveted on them. That’s what counts, even for him. And progress has been made. He credited tepid economic reforms in the crisis countries, fiscal bailout mechanisms, and “probably” also ECB President Mario Draghi’s announcement last year that the ECB would buy unlimited sovereign bonds, as Weidmann said, “of crisis countries under certain conditions if necessary.”
A grudging admission. Draghi’s infamous “whatever it takes” was the only thing that kept the debt crisis from blowing up the Eurozone. The mere threat of printing enough money to monetize the entire debt and all deficits did the trick. Printing money will always solve a debt crisis by bailing out bondholders, regardless of the costs to everyone else. “But,” he said, “it might take many years until the causes of the crisis are actually removed.”
Then he committed central-bank heresy.
He warned of low interest rates! There was a danger that the government and the private sector would get used to the cheap money, he said; it “keeps banks and companies that don’t have viable businesses alive.” He should be excommunicated from the central banking cartel for this transgression.
There was the danger that the current ultra-low interest rates were linked to “risks and side effects that increase with the duration of the loose monetary policy.” These ultra-low rates also deprived the central bank of its normal tools. Which put the ECB in a conundrum: “Our message is that the ECB is ready to act if necessary,” he said. “Yet the traditional instruments at the zero-interest-rate boundary are less effective.”
And the ultimate weapon against savers – those that haven’t been destroyed yet – negative deposit rates? They’ve been bandied about as solution to the economic quagmire. Banks would pay the ECB to store their money there. It would annihilate any interest that banks pay depositors. Destroying savers for the benefit of someone else is always good. Alas, rather than stimulate the economy, negative deposit rates could have the “opposite of the desired effect,” he said. Banks would pass on the costs associated with negative deposit rates to borrowers by raising the interest rates on loans. Instead of using cheap central bank money to step up lending to businesses and private households, banks would make loans more expensive.
Then he honed in like a heat-seeking missile on the voices clamoring for the ECB to hand banks another round of nearly free loans, similar to the previous Long-Term Refinancing Operations (LTRO). It had done absolutely zero for the economy in the Eurozone. Banks simply took that nearly free money and plowed it into high-yielding government bonds from crisis countries. It was a total no-brainer. And they got rich off the difference in yield without bending a finger. In the process, they loaded up their balance sheets with iffy Spanish and Italian government debt – while both countries sank deeper into their economic morass.
So this time, the loans would be designed to get banks to lend to certain businesses in certain sectors in certain crisis countries. That was the latest Eurocratic solution. Some wise central bankers would decide where exactly the money that they printed should go. They’d be called upon to “finely control regional or sectorial bank lending,” he said. But….
“That ends quickly in planned-economy approaches.”
A harsh warning. “Central banks should not interfere with the business decisions of banks to steer loans to certain regions or to certain borrowers,” Weidmann said. But then he returned to being a central banker whose job it was to give free money to the banks that are part of the cartel that he and his colleagues were holding together. Instead of opposing that more money is handed out, he suggested that banks should simply be discouraged from buying sovereign bonds through “pricing that makes such carry trades unattractive.”
And for the Eurozone as a whole, he saw no risk of deflation, unlike those who whined that not enough money was being printed. Instead, he saw inflation between 1% and 1.5%. It would be “low, but positive.” Longer-term, inflation expectations would be around 2%. Even if prices were to drop in Southern Europe, it would be “part of the adjustment to make these countries competitive again.” He didn’t see “a self-reinforcing and expectation-driven deflation” that could “act to exacerbate the crisis.”
But even he – like all central bankers – doesn’t waste his breath on an interview unless it’s to jawbone politicians and other players into doing what he wants them to do, drive consumers to spend more money, and manipulate the financial markets. Because manipulation is what central banks do, either by wagging their tongues or by handing out money.
Suddenly, there’s a solution to France’s economic crisis. Unlike the cacophonous clamor from the far right to drop the euro, this one was attractively presented with graphs and in terms that even a French politician might understand. And it’s not contaminated by partisanship. Read…. French Megabank: “Germany Should Leave The Eurozone”

Global Currency Reset

Global Currency Reset – December 17, 2013 – in 3 months.he greatest event in the financial word in the past 1,000 years is about to take place.wo hundred and four nations have agreed with the IMF (International Monetary Fund) to reset their currency. Christine Lagarde is the new financial head of the IMF.f she and the Elite have their way, this event will take place within the next ninety days (three months) The Elite have prepared you for this event with an Electric Smart Meter which has been installed on almost every house in America. Only from my Elite friend will you ever know what has been done to you. Only in my new DVD will you learn these details. No one else will dare to tell you this.

David Collum’s Year in Review and a Fed Fueled Demise

The EU’s debt has been downgraded, but does it matter? It’s the questions on deck, and we’ll supply an answer.Plus Cornell Professor, David Collum, is in studio today. He walks us through his “2013 Year in Review.”And paper or plastic? The Bank of England will start issuing polymer bank-notes in 2016. Rachel Kurzius and Erin discuss the move to plastic money in today’s Big Deal.
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$8.5 Trillion in Taxpayer Money to Pentagon Since 1996 Has Never Been Accounted For

In Archive, DoD, Military, Pentagon, Politics on November 20, 2013 at 10:45 AM
For two decades, the U.S. military has been unable to submit to an audit, flouting federal law and concealing waste and fraud totaling billions of dollars.

At the DFAS offices that handle accounting for the Army, Navy, Air Force and other defense agencies, fudging the accounts with false entries is standard operating procedure, Reuters has found. And plugging (false numbers) isn’t confined to DFAS (pronounced DEE-fass). Former military service officials say record-keeping at the operational level throughout the services is rife with made-up numbers to cover lost or missing information.

Plugs also are symptomatic of one very large problem: the Pentagon’s chronic failure to keep track of its money – how much it has, how much it pays out and how much is wasted or stolen.

As the use of plugs indicates, pay errors are only a small part of the sums that annually disappear into the vast bureaucracy that manages more than half of all annual government outlays approved by Congress. The Defense Department’s 2012 budget totaled $565.8 billion, more than the annual defense budgets of the 10 next largest military spenders combined, including Russia and China. How much of that money is spent as intended is impossible to determine.
In its investigation, Reuters has found that the Pentagon is largely incapable of keeping track of its vast stores of weapons, ammunition and other supplies; thus it continues to spend money on new supplies it doesn’t need and on storing others long out of date. It has amassed a backlog of more than half a trillion dollars in unaudited contracts with outside vendors; how much of that money paid for actual goods and services delivered isn’t known. And it repeatedly falls prey to fraud and theft that can go undiscovered for years, often eventually detected by external law enforcement agencies.
The consequences aren’t only financial; bad bookkeeping can affect the nation’s defense. In one example of many, the Army lost track of $5.8 billion of supplies between 2003 and 2011 as it shuffled equipment between reserve and regular units. Affected units “may experience equipment shortages that could hinder their ability to train soldiers and respond to emergencies,” the Pentagon inspector general said in a September 2012 report.
Because of its persistent inability to tally its accounts, the Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.
FLASHBACK 09/10/2001: $2.3 Trillion Missing From Pentagon

Gold – A Supressed Market Remains Suppressed, But For How Long?

Part of the reasoning for the price of gold to attain levels that are multiples of the
current price, sometime into the future, [too late for those who have been calling
for much higher gold prices in 2013], is the Federal Reserve central bank creating
trillions and trillions of digital currency to support every underwater bank in
existence.  None of the newly created imaginary computer entries, aka currency,
has made it into the hands of the business community, nor into the hands of the
people, aka financial serfs, as far as bankers are concerned.
The elites use central banks as their ATM machines to pay all the huge bonuses
bankers are paid, in return for financially destroying capitalism and maintaining
control of the Western world.  What the New World Order elites did not count on
was the fact that their own central banks and the countries they bankroll would be
faced with the Ponzi scheme destroying themselves from within, much like the
United States and that failed European Union scheme.
Under such dire circumstances, the demand for gold has never been greater, at least
from Eastern interests.  The demand from public interests, while high, is not enough
to cause alarm for central planners.  They can keep the masses under control.   On
the other hand, they have been blindsided by China, and for a different reason, Russia.
China has been the recipient of every tonne of gold they can buy.  Other countries have
also increased gold purchases, the BRICS nations and Turkey, primarily, but  China is
the largest buyer of gold, by far.  This has undermined the financial control of Western
central bankers, who are selling all their gold in order to keep China at bay.   The elites
have spent the past few hundred years accumulating, giving paper in return, and now
they are selling all they have as their own paper is coming back to roost.   It has left their
vgolden cupboards bare.
Russia has inserted themselves into the world as a new power in energy, undermining
central banker control via the 
petro dollar, aka Federal Reserve Notes, that are backed
by nothing but schemes to defraud the world and transfer as much wealth as possible
into the control of the elites.
Syria has not been about use of chemicals [supplied by the West] in a civil war [stirred
up by the West].  No.  It has been about Syria as a strategic delivery point for supplying
Europe with Russian natural gas.  That makes a lot of the world less reliant on Saudi oil,
which weakens the fiat Federal Reserve Notes, aka the “dollar.”
Less demand for the US fiat “dollar” means there is less need, [really none, now] for the
financially toxic Treasury bonds the US has been issuing [forcing upon] the rest of the
world in order for the US to finance its now broken, debt-riddled country.  The Fed has
become the buyer of last resort to purchase its own debt in its desperate attempt to keep
its Ponzi scheme alive.
What most of the public does not seem to grasp is events like these are responsible for
gold and silver being intentionally suppressed by central bankers to keep themselves in
power.  It is almost that simple.  We will never know the full stories behind what the
Western governments are doing, but their powers have been destroying the countries
under their control, and that control is maintained by worthless fiat currency, such as
the dollar, backed by nothing, and the Euro, a forced currency created to “unite” Europe
so it would be easier to fleece the member nations.
The stake to be driven into the hearts of these ruthless bureaucrats, more than well-
paid to carry out the grand scheme of the elite New World Order, [call it whatever you
will] is not wooden but golden.  Gold is what the Rothschilds coveted the most.  They
discovered how controlling 
interest can be when greedy sovereign rulers needed money
to finance their control and wars with other countries.  [This all started a few hundred
years ago.]
The Rothschilds supplied all the money necessary for kings to finance their wars.  In
return for unlimited availability of funds to pay the troops and all the other costs of battle,
the Rothschilds demanded gold and silver as payment in return for their loans.  Script was
loaned out, gold and silver was paid back.  When the ability to repay only gold and silver
became untenable, Rothschild demanded control of that sovereign nation’s money supply.
Hence his famous, “Give me control over a nation’s money, and I care not who makes the
rules.”  The Rothschilds ruled the rulers, and they ruled from behind the scenes.  This is
how the New World Order, the powerful elites who control all the currencies, came into
Who elected the International Monetary Fund, the Bank of International Settlements,
those who dictate to the central banks?  Who elected the bureaucrats in Brussels that
run the European Union?  This is an overly simplified version of “follow the money trail,”
but when you do, it leads back to the Rothschilds.  Everything else is a symptom.  The
moneychangers are the root cause.
To this day, almost all Americans have no idea that the Federal Reserve is not a part of the
Federal government.  The central bank, like all Western central banks is a privately owned
corporation.  The Fed, as a private corporation, “lends” money to the U S Treasury.  It does
not actually lend anything, it creates bookkeeping entries and issues bonds, debts the U S
must pay back to the Fed for the Fed lending a bookkeeping entry.  What must the US pay
back?  Gold and silver.
What happens when the gold and silver run out?  The elites who own and run the Fed puts
the US into bankruptcy, [1933], declares a “bank holiday” by shutting down the U S bank
system and reopens a few days later under the Federal Reserve banking system.  The U S
is gone.  The Rothschild formula is now in control of the nation, the laws, the people.
The irony is China and Russia are not under the control of the central bankers, [yet?].
Neither country will play the Rothschild debt game.  Neither China nor Russia will
surrender their gold in return for participation in a world banking system that will give
both countries unlimited amounts of 
fiat paper.  China and Russia went in the opposite
direction and built up their gold reserves, especially China.
China told the Western banking cartel to keep their paper.  That nation even went as far
as saying, “keep your Treasury Bonds, they are worthless.  In fact, here, take them back
and give us gold in return.”  If the Western banking cartel did not comply, China would
simply dump all their bond holdings onto the market and bankrupt the Rothschild
World control is at stake.  The West has had to empty out all their gold vaults, steal as
much allocated gold as they could, default on silver contract deliveries via MF Global,
doing whatever it takes to feed China and keep the collapsing fiat Ponzi scheme alive.
Otherwise, the Western banking system would collapse, as it is doing, and the elites
would lose their financial stranglehold over the nations they rule.
China and Russia, and the other BRICS nations are telling the US to perform an
anatomical act on themselves with all the worthless fiat and derivatives  they own
and control.  For all those who wonder why the “authorities” do not do anything
to correct all these illegal activities on Wall Street, the COMEX and LBMA, it is
because the authorizes are run by those who control Wall Street, the COMEX and
The price of gold must be kept suppressed at all costs for many of the reasons cited.
Does the fast-fading world reserve currency look like it is collapsing?  The chart does
not suggest it is.
The fiat currency is weak, and we can see this by an inability to trade back even to the 50%
level of the range from the high to low shown on the chart.  It is contained by a triangular
coil formation, and nearer the upper half of the range.  Whenever you see a price in the
middle of any kind of range, information is at its most unreliable, for price can go either
way and still not break out.  Better to wait for clearer direction.
If the fiat dollar is not in danger of imminent “collapse,” or even breaking down, then gold
does not have this event as an impetus for rallying higher.
DX M 21 Dec 13
The barrage of “gold reserves are at lowest levels,” or “the number of paper claims against
each available physical ounce remains high,” etc.  All of these articles regurgitating these
reports are well-intended, but they are already factored into the market.  More of the same
kinds of information is not going to change the downward price momentum, just like all
the previous sensational news has not made any difference.
The gold market is being held hostage by the elites and tightly controlled by their central
banks.  Wall Street and bankers are impervious to rules, regulations, even laws.  The likes
of Lloyd Blankfein and Jamie Dimon are not doing god’s work, they are doing the work of
the elites to maintain total control over every aspect of people’s lives.
Until that control is ceded, gold ain’t going higher, at least in the short term.
GC W 21 Dec 13
For all the global demand for and short supply of gold, there are other reasons why you
see price at the recent lows.  However dismissive anyone wants to be of charts depicting
what is admittedly a corrupt paper market, and irrespective of a premium for physical
gold over paper, the price of the physical is still expressed in values related to the paper
That being said, there are so many reasons that one should be buying and accumulating
physical gold.  The Western financial system, [Ponzi scheme], of fiat currency is closer and
closer to failing.  China has no reason to force the West into immediate collapse.  The
Chinese are more patient and know the West will self-destruct on their own.  China is
already shopping the Western world, buying up bargains.  Russia also knows it has a
winning hand.  The Putin v Obama showdown over Syria was an embarrassment to the
rank political amateur U S president and a demonstration of Russian confidence.
Owning physical gold is one of the best ways of preserving one’s wealth, even growing it,
once Western default becomes a reality.  The problem is that reality could take longer
than most expect, as it already has.  The upside for gold buyers is, they still have time
to buy, and at prices that are unlikely to be revisited in anyone’s life time.

GC D 21 Dec 13

Chinese media reports of plans to build a 110,000 ton ‘super aircraft carrier’ to rival US naval power

China has declared it is building a nuclear-powered aircraft carrier of a size to rival the biggest in United States naval service in the first move of a major new arms race.
Chinese website cites “top People’s Liberation Army” sources as saying the 110,000-ton aircraft carrier should be launched by 2020.
“By that time, China will be able to confront the most advanced US carrier-based fighter jets in high sea”
Use Google Translate
China’s first homegrown aircraft carrier will be a larger version of Liaoning. The first of two such vessels is due to hit the water in 2015.
The design is reportedly based on drawings from the former Soviet Union of a nuclear-powered, 80,000 ton vessel capable of carrying 60 aircraft.
“Despite their lack of experience, Chinese scientific research personnel have the ambition to overcome various difficulties to master lots of new technologies and techniques in building China’s own powerful aircraft carrier,” the article reads.

Dollar Hegemony and “Monetary Geopolitics”: The Symbiosis between Global Finance and Power Politics

RINF Alternative News
The following article is part II of longer text pertaining to Hegemonic Currencies and Monetary Geopolitics, and “Honey Traps”: The Strauss-Kahn Affair, A Stealthy Coup d’état at the IMF?
“Money brings honor, friends, conquests and realms» –John Milton
José Miguel Alonso Trabanco
RINF Alternative News

This study is incomprehensible unless one acknowledges that “the management of money is always and everywhere political [and that…] even in the esoteric realm of money, international relations still reflect, to some extent, the interests of powerful states” (Kirshner, 2003). Along these lines, since Classical Antiquity, there has always been a strong connection between wealth and military power and therefore, in the most simple and direct way, between economics and national security. Not surprisingly, modern times are not so different. (Friedberg, 1991).
Therefore, the trends that rule the behavior of currencies are strikingly similar to those that govern the conduct of national states. They both seek dominance in highly hierarchical and dynamic systems where competition, conflict and confrontation are commonplace. They both gain and lose power and prestige at the expense of one another in zero-sum games (Cohen, 2003). Therefore, “the realpolitik balancing instinct would apply to currency politics as well as geopolitics” (Drezner, 2010).
The evident overlapping parallel implies that, paraphrasing Robert Mundell (1993), powerful States have powerful currencies. In fact, history provides many examples that demonstrate that “currency can enhance the power of the state that issues it” (Cohen, 2009). Thus, it would be mistaken to disregard that “Money Rules – now more than ever – but those rules serve political masters [so] students of money in general and political scientists most particularly must return to that basic starting point – money is politics”. (Kirshner, 2003).Indeed, “World history demonstrates that there is a close relationship between monetary systems and war and peace”(Lips, 2004).
Furthermore, since the dawn of human civilization, the issuance of currency has invariably carried heavy political connotations related to territorial considerations: “governments have been assumed to enjoy a natural right of monopoly control over the issue and management of money within their borders [and following a model akin to a]Westphalian model of monetary geography […whereby] each state was expected to maintain its own exclusive territorial currency” (Cohen, 2008).
Consequently, not unlike nations, currencies rise and fall too. “An examination of the long history of reserve currencies shows the tendency for one currency to dominate, with any change in status often reflecting a shift or rebalancing of economic and political power” (Lee, 2010). Accordingly, “currency internationalization does indeed impact directly on the power position of issuing states” (Cohen, 2009).
Hence, there seems to be a persistent symbiotic link between geopolitics and finance that represents an element which is considered by statesmen in order to properly assess national power. Indeed, it is known that nowadays Central Bankers and political leaders actively collect intelligence information on the behavior of currencies and periodically test their relative strength, in order to “adjust their strategies accordingly” (Stroupe, 2005).
However, hegemonies, both geopolitical and monetary, are not perpetual: “historical experience demonstrates the speed and pervasiveness of changes in national economic power; since hegemony is transitory, so must be any international monetary system that takes hegemony as its basis” (Eichengreen, 2003), which indicates that “the international monetary system has always rested and depended upon political foundations” (Kirshner, 2003).
The following graph, based on data from a study on the evolution of monetary hegemony (Dwyer & Lothian, 2002), shows the historic succession of dominant international currencies from the 5th century B.C. onwards. Not surprisingly, as can be clearly seen, currencies occupy a dominant position when the nation that mints them becomes a great power.
However, “since states are no longer able to exercise supreme control over the circulation and use of money within their own frontiers, they must instead do what they can to preserve or promote market share. As a result, the population of the monetary universe is becoming ever more stratified, assuming the appearance of a vast Currency Pyramid — narrow at the top, where the strongest monies dominate; and increasingly broad below, reflecting varying degrees of competitive inferiority” (Cohen, 2003).
At this point, it is important to emphasize that ‘reserve currency’ status is the highest position a currency can attain because it is “something which evolves over time through combination of international economic and political power and convenience to the greatest number of users rather than abruptly as the result of conscious decisions by a single country”(Eslake, 2009). Moreover, there are other evident advantages provided that “the issuers of currencies that are widely used by others as reserve assets […] can finance deficits simply by printing more of their own money” (Cohen, 2008). Therefore, there is a “link between the distribution of economic power and the allocation of reserve currencies” (Drezner, 2010). Hence, “the great bulk of reserves is held in the form of highly liquid assets denominated in one of the small handful of moneys at the peak of the Currency Pyramid” (Cohen, 2009).
A reserve currency is thus defined by three essential attributes:
a) It provides a store of value, i.e. “confidence that the currency will retain its value, so making it a safe place in which to invest official reserves or denominate contracts” (Dobbs, 2009). Confidence is critical because “economies operate on trust as a foundation” (Stroupe, 2006). Thus, “reserve assets serve as a store of value that can be used directly for intervention purposes or else can be more or less quickly converted into a usable intervention medium” (Cohen, 2009).
b) It is employed as a “medium of exchange that offers the ability to transact globally in the currency in an easy and low-cost way” (Dobbs, 2009). As such, “a reserve currency facilitates trade and finance by decreasing the number of bilateral exchange markets that need to be created, thus reducing transaction costs” (Carbaugh&Hendrik, 2009). Therefore, it provides a reference to set the bilateral exchange rate quotations (Oxford Analytica, 2008).
c) As a unit of account, it is “a widely held and recognized currency that can be used to denominate international contracts […and] to invoice contracts” (Dobbs, 2009) and it is the currency in which many commodities –including fossil fuels, strategic raw materials, precious metals– and financial instruments available in capital markets are priced and traded (Oxford Analytica, 2008).
The latter is particularly important because there is a strong link between finance and hydrocarbons market, due to the fact that “black gold has other pseudo-monetary characteristics as an indispensable commodity that practically begs to be controlled. In an increasingly industrialized world, this fungible primary energy source is everywhere in demand [and, as result…] the spectrum of thought on national security and foreign policy [is taken] into the realm of high finance, capital flows and the trump asset of energy resources (Roby, 2010).
Hence, this research paper must be understood in the context of the United States dollar’s decades-long role as the ‘first among equals’ in the international monetary system. The following graph, based on data from a paper written by a prominent scholar of International Political Economy (Cohen, 2009) illustrates the current hierarchical pyramid of currencies, classified as “top currency”, “patrician currencies” and “elite currencies”.
In geopolitical terms, during the Cold War period, the Dollar hegemony “held the American alliance system and the world economy together… [because] America‘s major allies and economic partners were willing to hold dollars for political as well as for economic reasons” (Engdahl, 2006). Therefore, the privileged position of the dollar has been “a key contributor to US global hegemony” (Oxford Analytica, 2008) for it provides advantages derived from the Federal Reserve‘s absolute monopoly of the printing of a currency needed by countless national economies to survive (Engdahl, 2003).
Thus, thanks to of its wealth, “America has been able to irresistibly influence all the other players on the geopolitical chessboard because it has led the global economy, and historically it could therefore greatly reward or severely punish in ways and to an extent no one else could” (Stroupe, 2006), attaining both political and diplomatic power, as well as formidable power projection capabilities.
For this reason, “America‘s dominant position as the sole superpower ultimately rests upon two pillars: its overwhelming military superiority and its control of the global economic system by the unique role of the dollar as the World Reserve Currency” (Clark, 2005). According to this reasoning, “it might be considered an elemental interest of the United States to maintain the system which also includes intense diplomatic and limited military operations in order to preserve its abundant financing for as long as possible. After all, there seems to be a strong interdependence among nations. The US is dependent on cheap financing from abroad and is even willing to apply some military power to protect these interests” (Schulz, 2009).
Moreover, it cannot be denied that “the dollar’s leading role in foreign exchange transactions also is reinforced by this currency’s widespread use in the invoicing of international trade” (Goldberg, 2011). That is especially true about oil markets, given that “since oil trade was and still is noted, as well as traded in US Dollars, every nation has to purchase huge amounts of this currency for its national reserves in order to maintain its ability to purchase the required energy” (Schulz, 2009). Consequently, monetary dependence of others on the issuing country confers the latter significant geopolitical power(Cohen, 2003).
The unavoidable reasoning that arises is that “a full challenge to the domination of the US dollar as the world central-bank reserve currency entails a de facto declaration of war [on American power]” and, as a result, the United States is willing to fight wars to defend its national currency (Engdahl, 2006) because “an end to the dollar’s reserve currency status would impose material constraints on the United States to finance its deficits, and lead to a major loss of prestige and power projection capabilities” (Drezner, 2010). A possibility is that “widespread oil pricing in alternative currencies or perhaps the bartering of oil would then threaten U.S. hegemony by crimping the relative global demand for dollars” (Roby, 2010).
Nevertheless, perpetual hierarchic supremacy of the dollar cannot be taken for granted: “Sooner or later, confidence in the dollar is bound to be undermined by America‘s chronic payments deficits, which add persistently to the country’s looming foreign debt […] The exorbitant privilege obviously cannot endure forever; America‘s spending cannot indefinitely exceed its income. In the absence of significant policy reforms to reverse the deficits, the world’s trust in the dollar is bound […] to be eroded. Dollar accumulations will eventually dry up and could even turn into massive sales” (Cohen, 2008).
The feasibility of said scenario has been enhanced by recent events. Indeed, “the [2008 and 2009] financial crisis and its aftermath have triggered uncertainty about the future of the dollar as the world’s reserve currency” (Drezner, 2010) because it “revealed the inherent weaknesses of the current international monetary system that contributed to global financial instability and a weak global economy and [said crisis has also] hampered the long-term prospects of both the US dollar and the euro as reserve currencies. The crisis has compromised both currencies as safe-haven stores of value” (Lee, 2010).
The following chart, based on official IMF data (International Monetary Fund, 2013) reflects the composition of foreign exchange reserves held on a global basis by early 2013. As can be seen, nowadays the US dollar still occupies a predominant position which is unmatched by other inhabitants of the world’s current monetary universe.
At first, “it appears that the current system of dollar dominance will persist provided that geopolitical tensions do not become too important for policymakers – or not important enough” (Drezner, 2010), yet appearances can deceiving and potential challengers might become increasingly assertive: “several states around the world today are thought to harbor ambitions to amplify their monetary power – including, most prominently, the four BRIC countries (Brazil, Russia, India, and above all China). One way to do this is to promote internationalization of their currency” (Cohen, 2009) by “trying to establish their own financial regimes as the international payment vehicle” (Schulz, 2009).
It is telling that, back in 2008, Vice Admiral J. Michael McConnell, then Director of National Intelligence voiced before the United States Congress Intelligence Committee his “concerns about the financial capabilities of Russia, China, and OPEC countries and the potential use of their market access to exert financial leverage to achieve political ends” (McConnell, 2008). The senior American official’s threat assessment is not mistaken: “influence might be increased directly through the use of newly acquired reserve stockpiles to threaten manipulation of the value or stability of a key currency such as the dollar” (Cohen, 2008).
The Vice Admiral’s statement, which –needless to say– goes “beyond the conventional world of spycraft” (Shelton, 2008), implies that the US intelligence Nomenklatura has already acknowledged the threat posed by the geopolitical manipulation of financial forces by foreign powers hostile to American interests. It might be interpreted as the confirmation that “the United States may be expected to resist any compromise of the greenback’s historical dominance…” (Cohen, 2008).
Indeed, McConnell’s concern is not unsubstantiated at all, taking into account that “[the] US increasingly came to rely on the governments of countries that were neither democracies nor US allies for financing […and since such States] with large quantities of reserves have more strategic freedom of action; they are less likely to be deterred from taking geostrategic risks by the possibility that their actions could precipitate a financial crisis (Setser, 2009).
Actually, the unleashing of financial warfare seeks the infliction of economic damage as it “involves malicious acts in markets for stocks, bonds, currencies, commodities and derivatives” (Rickards, 2012). The same author points out that, unlike conventional warfare, it can be waged stealthily enough so as to obscure the identities of the attackers as well as their channels. Thus, it requires a remarkably high degree of sophistication.
The aforementioned has engendered, paralleling Cold War terminology, a system akin to a “balance of financial terror” (Summers, 2004) whereby America‘s overall stability could potentially be threatened due to the fact that “America‘s partners in NATO are no longer the dominant holders of US dollars in reserve as they were during the cold war. The connection between dollar holders and security partners has been severed [and, as a result,] the dollar depends on the kindness of strangers” (Drezner, 2010). At this point, it is vital to underscore that “[regarding monetary concerns] politics will mater greatly [because] States do not typically (accumulate claims on) countries that are, or may be, their geopolitical competitors –if they can help it, that is, or if there is any credible alternative” (Jaeger, 2010).
In the light of the above, based on data from the CIA World Factbook (Central Intelligence Agency, 2012) and the World Gold Council (2011), the following chart reveals the largest proprietors of financial assets, including foreign currency reserves, gold and holdings of SDR. The list includes industrial economies, emerging powers, world-class financial centers and oil exporters. Not many of them are staunch US allies, some might eventually reconsider their Foreign Policy vis-à-vis America and only one of them, namely Germany, is a NATO member, for the time being.
It must be borne in mind that “for historical reasons gold is still included in the reserve stockpiles of many countries, despite the fact that it is no longer directly employable as a means of exchange. So too are SDRs [and that both of them] must be exchanged for a more utilizable instrument when the need for financing arises” (Cohen, 2009). Indeed, given the fact that the aurous metal “has been used as money to a greater or lesser extent for much of the history of civilization” (Michaud, et al., 2006), it “fulfills the unique function of a global store of value” (Faugère& Van Erlach, 2005). Incidentally, even though the US is not among the top ten holders of financial assets, most the US currency reserves are not denominated in dollars (!) but in gold: Its 8,133.5 tons represent 76.6% of its national currency reserves (World Gold Council, 2011).
Even though this paper does not focus on the yellow metal, its significance in terms of monetary politics is deservedly acknowledged because “from the beginning of recorded history some 6,000 years ago, gold made a profound and lasting impression. Gold was, and still is, the ultimate symbol of wealth, power, beauty and prestige. It has been deeply rooted in the consciousness of man ever since” (Lips, 2001) and, as a result, “gold is a political metal” (Lips, 2004). As such, it is “highly susceptible to geopolitical factors [because…] during periods of fiscal or monetary mismanagement, crises of various kinds or fundamental changes in the dominant currency, gold may be a very useful asset for hedging risk” (Michaud, et al., 2006).
In other respects, dollar hegemony went unchallenged during six decades because no competitive rival emerged, yet “ample evidence exists to suggest that the distribution of power in international monetary affairs is changing” (Cohen, 2008). Especially, the rise of the People’s Republic of China as an economic superpower has enhanced the possibility that the ‘Middle Kingdom’ could become, in the long run, a financial superpower (Makin, 2011). Naturally, “many PRC scholars and policy makers […] aspire for a world economic and financial order less dominated by the US and in which the PRC can play a more influential role” (Lee, 2010).
Accordingly, by proposing alternatives to the US dollar as reserve currency –like Special Drawing Rights–, “China desires to decrease the financial and political power of the United States” (Carbaugh&Hendrik, 2009) and, it has to be taken into account that “If any nation is in a position to use its newly acquired influence in this manner, it is China. At any time, Beijing could undermine America‘s money by dumping greenbacks on the world’s currency exchanges or even simply by declining to add dollars to China’s reserves in the future” (Cohen, 2008).
Both options are not mutually exclusive and they can be advanced simultaneously. Indeed, the People’s Bank of China could covertly and progressively diversify its massive currency reserves by ceasing to buy American dollars and, simultaneously, stockpiling growing reserves denominated in other currencies and even in precious metals. This deceptive strategy is meant to preserve wealth without precipitating a sudden dollar collapse, along with some political consequences such move would recklessly unleash. Therefore, it is not surprising that the composition of its foreign currency reserves is one of the highest state secrets of the People Republic of China (Stroupe, 2006).
Even if “China’s tactics suggest that it is not prepared to challenge the dollar’s hegemonic status at any point in the near future” (Drezner, 2010), it actually looks like, in the long term, Beijing is interested in forging a new monetary system in which the US dollar is no longer the only reserve currency available and overreliance on the American currency is not a necessary evil anymore. Chinese statesmen can accomplish such an ambitious objective through the application of two strategies: a) contributing to the strengthening of Special Drawing Rights (DSR)[1], in order to establish a multilateral reserve currency under which financial power will be, more or less, evenly distributed and b) unilaterally promoting the internationalization of the Renminbi as a growingly solid currency (Chin & Wang, 2010).
Interestingly, the international monetary diversification away from the dollar is enthusiastically welcomed by Russia (Drezner, 2010), an utmost resourceful challenger of American geopolitical interests which, as such, would be more than glad to witness the accelerated decline of the US as the international’s system top power.
If the economic rise of China is uninterrupted during the next few decades, there will be profound financial and, above all, geopolitical consequences: “If the yuan emerges as a reserve currency potentially rivaling the dollar, China will become more powerful and the US less powerful in international and financial affairs… [In that sense,] the emergence of the yuan as a major reserve currency will reflect the underlying shift in economic and financial power, even if it does, independently, provide tangible benefits to China [but] this is likely to have ramifications for Washington’s political position in the world” (Jaeger, 2010).
Reportedly, while discussing if accumulating mammoth currency reserves denominated in American currency benefits China’s national interests, Beijing’s ruling elite has questioned the long-term strength of the US dollar a solid store of value and, in order to encourage the introduction of a new international monetary system under a new global reserve currency and, thus, senior Chinese government officials have implemented. “measures to promote the internationalization of the renminbi [also known as ‘people's currency' or yuan]” (Drezner, 2010).
Nowadays, it appears likely that “the yuan is set to become a major reserve currency, but it is not a foregone conclusion that it will emerge as the dominant reserve currency 20, 30 or even 40 years from now. For, despite heated theoretical debate, it is possible for two or even three major reserve currencies to co-exist” (Jaeger, 2010).
Even if it is still unclear who will inherit the dollar’s position as hegemonic currency due to a lack of credible alternative successors, the assumption that an eventual monetary transition, far from being unfeasible, is a real possibility, considering that “several currencies can share reserve currency status, as they not infrequently have. Changes in financial technologies and market structures […] make it even more likely that this will be true in the future than the past” (Eichengreen, 2005). Likewise, “a multi-currency reserve system provides alternatives for countries to diversify their foreign exchange currency holdings. If dollar liabilities increase and confidence declines, for example, central banks can switch to the other reserve currencies” (Lee, 2010).
Accordingly, it is way too early to accurately forecast what the international monetary system will look like during the next few decades. It is also unknown if the much-anticipated shift will be accomplished through peaceful or violent means. In the absence of consolidated challengers, it appears likely that some sort of ‘multipolar balance of monetary power’ will emerge, i.e. “[a] fragmented currency system, with no dominant leader… [akin to the] interregnum of the period between the two World Wars, when Britain‘s pound sterling was in decline and the dollar on the rise, but neither was dominant” (Cohen, 2008).
Whatever the ultimate result, it must always be kept in mind that a power vacuum is not meant to last neither in geopolitics nor in finance. Along these lines, some analysts foresee that “the dollar’s global dominance is more likely to be lost incrementally to a number of other currencies as those currencies continue to rise in international importance, that is, as they come to be used more frequently in international transactions” (Stroupe, 2006).
If the US dollar does lose its royal crown, it will not be immediately grabbed by another national currency. There are alternative possibilities that deserve special attention, such as Special Drawing Rights (SDR), which were “created by the International Monetary Fund (IMF) in 1969 to support the Bretton Woods system of fixed exchange rates. The IMF’s objective was to introduce into the payments mechanism a new type of international money, in addition to the dollar and gold, that could be transferred among participating nations in settlement of payments deficits Although the SDR was designed as a reserve currency, it never took off. SDRs today add up to less than 1 percent of total reserves. The SDR has only limited use as a reserve asset, and its main purpose is to serve as the unit of account of the IMF and some other international organizations. Rather than being an international currency, the SDR is a potential claim on the freely usable currencies of IMF members” (Carbaugh&Hendrik, 2009).
Nonetheless, it must be pointed out that “The SDR is not a hard currency but rather a derivative as its value is determined based on the value of other assets […] more importantly, the SDR is tied to all the world’s economies unlike existing currencies which are components of either a single country’s economy or a pool of countries like the euro” (Rosensweig, 2009). In other words, SDR is regarded as the “Esperanto of currency options” (Drezner, 2010).
The aforementioned plurality is due to the fact that “the value of the SDR is defined as a basket of currencies which include the U.S. dollar, Japanese yen, UK pound, and the euro. The SDR’s basket composition is reviewed every five years to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. the economic welfare of the world would not depend on the behavior of a single currency, namely the dollar. Currency risk would be diversified through a basket reserve unit. It would take years to develop SDR money markets that are liquid enough to serve as a reserve asset. Although the IMF approved the first issuance of SDR-denominated bonds on July 1, 2009, as it attempts to increase its resources, the bonds can be purchased and sold only by central banks, not private investors” (Carbaugh & Hendrik, 2009).
On the other hand, it is outstanding that, only until relatively recent times, have military strategists acknowledged the full destructive potential of financial warfare as a geopolitical weapon of the highest caliber, yet if offers the advantage of avoiding much bloodshed, unlike the use of conventional armament or Weapons of Mass Destruction –WMD–. Indeed, according to Chinese military experts, wars can be waged through the manipulation of financial instruments to demolish countries’ national economies. In that sense, the consequences of financial attacks are usually devastating because they precipitate “a near collapse of the social and political order.
“The casualties resulting from the constant chaos are no less than those resulting from a regional war, and the injury done to the living social organism even exceeds the injury inflicted by a regional war [and an additional advantage is that]… financial war […] allows for concealed actions…” (Quiao & Wang, 1999).
In that sense, it has been argued that dollar hegemony was somehow involved with the Anglo-American decision to invade Iraq back in 2003, not long after the Middle Eastern country had switched to the euro in its oil exports. Once Saddam Hussein’s regime was overthrown, the occupation forces “quickly reconverted Iraq‘s oil transaction currency to the dollar” (Clark, 2005). That would explain the staunch Franco-German reluctance to participate in and back Operation Iraqi Freedom.
Libya offers another intriguing case worth looking into. Libyan satrap Muammar Gaddafi was reportedly planning to sponsor the introduction of a gold currency shared by African and Arab nations (Scott, 2011). Revealingly, French President Sarkozy even declared that, “Libya has begun to change their views towards financial security of mankind” (Gold Investment, 2011). Furthermore, during an ensuing bloody insurrection, Western-backed rebels fighting to unseat Gaddafi established their own central bank even before the Libyan dictator was finally deposed and a new government could be created, which illustrates that “there were some pretty sophisticated influences [involved and that it also shows] how extraordinarily powerful central bankers have become in our era” (Brown, 2011).
Finally, “the absence of geopolitical tensions could boost the chances of coordinated shift in currency reserves” (Drezner, 2010), but it definitely cannot be discarded that “the outcome could be heightened struggle for lead­ership over the longer term and a rising tension in international currency affairs” (Chin & Wang, 2010). Indeed, it seems that the first shots of this very unconventional war may have even been fired already, indicating that, apparently, “a battle of currencies [far from being peaceful] could get nasty” (Cohen, 2008).
Indeed, “there are many other historic examples of the US stepping in to halt a movement away from the petrodollar system, often in covert ways” (Katusha, 2012) and the case of Dominique Strauss-Kahn may offer one of such examples. The author of this paper shares said perception and believes that, as will be explained below, DSK apparently may have been one of its (political) casualties.
Intergovernmental Institutions as Battleground Arenas
“Money is a good soldier, sir…» –William Shakespeare
It is mistaken to disassociate international institutions from the contextual balance of power that prevails at any given time. Far from being autonomous players, they “are created by the more powerful states, and [they] survive in their original form as long as they serve the major interests of their creators, or are thought to do so [and] institutions remain close to the underlying distribution of national capabilities or [else] they court failure” (Waltz, 2000).
From the moment of their inception, intergovernmental institutions are inescapably permeated by national interests due to the fact that “States sometimes operate through institutions. The most powerful in the system create and shape institutions so that they can maintain their share of world power, or even increase it” (Mearsheimer, 1994). As a result, institutions are not politically neutral. Instead, they “reflect state calculations of self-interest based primarily on concerns about relative power” (Mearsheimer, 1995). So, it is not surprising at all that powerful States struggle to control, either directly or indirectly, those same institutions.
For instance, the Organization of American States (OAS) is clearly dominated by the USA as the Shanghai Cooperation Organization (SCO) is undeniably dominated by both the People’s Republic of China and the Russian Federation. Likewise, “since the founding of the Bretton Woods institutions in 1945, the World Bank has been headed by an American whereas the FMI has been under the helm of a (Western) European” (Chossudovsky, 2011). Such control indicates that, when both institutions were created, the US and Western Europe wanted to forge a comprehensive transatlantic alliance which could encompass economic and financial affairs. There was also, of course, a military counterpart: The North Atlantic Treaty Organization (NATO).
The following lists, based on official data published by both the International Monetary Fund (2012) and the World Bank (2012), illustrate that the former has always been ran by a European whereas the latter has invariably presided over by an American.
In that sense, international financial institutions –like the IMF– are certainly no exception because “the most basic choices about money – what money is used where, the behaviour of international financial institutions, and efforts at cooperation – can only be understood as the outcome of a political contest between states with motivations other than the pursuit of global economic efficiency” (Kirshner, 2003).
History has shown that, from the very beginning, “the evolution of the IMF has reflected the geopolitics of the international economy. [Beyond the fact that its] headquarters […] have always been in Washington D.C. […it] has undoubtedly played a role which has been useful for the general national interest of the United States” (Bordo& James, 2000).
In fact, it has been acknowledged that “one key channel of U.S. global influence in the modern economic system has been its influence on the institutions, such as the IMF and World Bank, that undergird the current international economic and financial order” (Goldberg, 2011). Moreover, “the United States also exercises a substantial amount of informal power at the IMF” (Weiss, 2012).
It must not be forgotten that the “the IMF is owned by the governments of its member countries, represented through a Board of Governors. The Governor for each member country is usually the Minister of Finance or sometimes the Central Bank Governor. Voting is in accordance with the size of a country’s share-holding in the Fund (or ‘quota’), and many important decisions require special majorities (85% of the vote). Periodically, quotas are recalculated to reflect changing economic size”. (Bordo& James, 2000).
Consequently, it is deeply mistaken to assume that IMF activities cannot be interpreted as foreign to power politics and “many analysts contend that the IMF is a highly politicized institution, reflecting the wide power differential between a few advanced economies and the remaining membership” (Weiss, 2012). Moreover, “diverting the IMF, for geopolitical purposes, from its principles to serve particular interest is possible since decisions to lend are taken by the Executive Board […which] is responsible for conducting the day-to-day business of the IMF. It is composed of 24 Directors, who are appointed or elected by member countries or by groups of countries, and the Managing Director, who serves as its Chairman” (Reynaud &Vauday, 2007).
Indeed, power is not evenly distributed among the IMF’s 188 member States. That multilateral organization (International Monetary Fund, 2012) explains that “Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy. A member country’s quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF financing”. The logical result is that “members with very large voting weight can possess a disproportionately greater voting power” (Leech, 2002). In a nutshell, “the quota system is the basis of asymmetric power relations among member states in the IMF” (Blomberg& Broz, 2006).
The following charts, based respectively on data from the IMF (2012) and the CIA (2012) reflects a comparison between the most influential IMF members, measured in terms of the share of their voting power, and the largest economies, in terms of their 2011 Gross Domestic Product (nominal). The correspondence is somewhat accurate but, in the IMF system, the US, Japan, Germany, France, the UK and Canada and are overrated, whereas China, India and Brazil are underrated. Please note that, as of June 2012, the US represents 16.75 % of the vote and, as a result, has the power to veto IMF decisions it does not accept or agree with.
Conversely, it has to be taken into account that “[even though] looking after national interests is the responsibility of national governments… History gives us many examples of states choosing policies supposedly in the national interest, but which in fact were chosen to serve the interests of social, political or economic elites… History has many examples of national policies serving special interests” (Strange, 1998). Moreover, “finance is no longer dominated [only] by a few national governments at the apex of the global order” (Cohen, 2008). By extension, the same applies to intergovernmental organizations, including the IMF.
Along these lines, the International Monetary Fund is hardly an independent entity or indifferent to pervasive financial and banking interests, for it “is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from [investment bank] GoldmanSachs, and, secondarily, the European powers” (Weisbrot, 2011). Indeed, “while the IMF is in theory an intergovernmental organization, it has historically been controlled by Wall Street and the US Treasury [… and its] role is to implement and enforce those economic policies on behalf of dominant economic interests” (Chossudovsky, 2011).
It is not far-fetched to assert that “the IMF also responds to pressure from private banks, as evidenced by the fact that IMF programs include conditions that support their interests” (Dreher, et al., 2007). In fact, even insiders admit this. For example, former Senior Vice President of the World Bank Joseph Stiglitz (2002) points out that the IMF is controlled by the wealthiest countries and also by their financial interests, which provide the prism employed by the Fund’s staff to observe events and developments. Stiglitz adds that, therefore, it makes sense to presume that the IMF’s policies are designed taking said interests into consideration.
The power of banking clans currently reaches considerable heights and must not be dismissed outright only because they are non state actors. According to an article published by the New Scientist magazine, a compact group of corporations, “mainly banks, [exert] a disproportionate power over the global economy” (Coghland&MacKenzie, 2011). The study, produced by complex systems theorists at the Swiss Federal Institute of Technology at Zurich, revealed that, through entangled corporate ownership networks, financial juggernauts stand out among the top “superconected companies”: Barclays pls, JP Morgan Chase & Co, Deutsche Bank, Credit Suisse Group, Goldman Sachs Group Inc, Morgan Stanley, Mitsubishi UFJ Financial Group Inc, Bank of America Corporation, Lloyds TSB Group plc, ING Groep NV, among others.
A Geopolitical Interpretation of DSK’s Downfall as Managing Director of the IMF
“And I sincerely believe, with you, that banking establishments are more dangerous than standing armies…»–Thomas Jefferson
The International Monetary Fund (IMF) is not commonly thought of as a likely candidate for regime change. Whenever one hears such term, one thinks of strategically important States whose geopolitical patronage is being fought over by great powers: Belarus, Cuba, Iran, Libya, Myanmar, Syria, Ukraine, Venezuela and so on and so forth.
In fact, the IMF was established by the Western victors of World War Two, who reached an unwritten agreement whereby the World Bank would be run by an American whereas the IMF would be lead by a European, as explained above. Therefore, according to conventional wisdom, it is hardly conceivable that the most important intergovernmental financial organism worldwide could even hypothetically become the target for a regime change operation.
There might several member states interested in changing IMF policies or maybe even its overall direction, but it has to be acknowledged that only very few governments have the political willingness, the necessary contacts, the inside influence, the global reach or the technical capabilities to bring about such an outcome without serious consequences or at least without being visibly detected.
In that sense, back in 2007 even the Russian Federation failed to substantially promote its handpicked nominee, then Governor of the of the Czech National Bank Josef Tošovský. Instead, Dominique Gaston André Strauss-Kahn (DSK), a French politician associated with the Socialist Party, became Managing Director of the IMF as the candidate backed by the European Union, replacing Spaniard Rodrigo Rato.
DSK was even supported by right-wing French President Nicolas Sarkozy, who was allegedly trying to send away one the most prominent heavyweights of the Socialist Party (Reuters, 2007) and, it must be borne in mind, a potential challenger for Sarkozy’s UMP Party -Union pour un MouvementPopulaire- in the coming French presidential election that was to be held in 2012.
Moreover, what could possibly motivate a soft coup d’état against DSK?
There is an intriguing possibility. According to the UK-based newspaper The Guardian, in February 2011, Strauss-Kahn proposed the introduction of a new world currency that would challenge the supremacy of the US dollar and help ensure a greater financial stability prevails. The then managing director of the IMF specified that “using the Special Drawing Rightsto price global trade and denominate financial assets would provide a buffer from exchange rate volatility”, while “issuing SDR-denominated bonds could create a potentially new class of reserve assets“ (Stewart, 2011).
Said proposal, far from being far-fetched, is theoretically feasible because “even though there is no currency currently poised to dethrone the dollar, that does not mean that the euro, the yuan, or a basket of currencies such as the SDR could not eventually join the dollar as a reserve currency” (Carbaugh&Hendrik, 2009).
One must bear in mind that, during DSK’s tenure as Managing Director, the IMF published a study which examined the implications of enhancing the role of SRD in the context of the debate concerning international monetary reform, especially as a unit of account “which could be used to price internationally traded assets (e.g., sovereign bonds) and goods (e.g., commodities), to peg currencies, and to report balance of payments data” (International Monetary Fund, 2011).
Such solutions, according to the same IMF working paper, need to be taken into consideration in order to correct problems like persistent global imbalances, large and volatile capital flows, exchange rate fluctuations disconnected from fundamentals and insufficient supply of safe global assets, among others. Interestingly, the paper’s authors warn that political hurdles and constraints would need to be overcome (!).
It is important to consider that some specialists specify that an attack on the dollar’s position as the world’s top reserve currency amounts to an attack against the Achilles’ heel of American power. In fact, “The second pillar of American dominance in the world [the first one being superior state-of-the-art military technology] is the role played by the US dollar as the international World Reserve Currency…Maintaining this is a strategic imperative if America seeks global dominance. It should be noted that dollar hegemony is in many respects more important than US military superiority. Indeed, removing the dollar pillar will naturally result in the diminishment of the military pillar” (Clark, 2005).
Hence, it is logical to believe that Washington is not willing to lose, at least not without a fight, the considerable economic and political advantages derived from the role of the US dollar as the only truly global reserve currency, which is used as a medium of exchange, unit of account and store of value all over the world, taking into consideration that “[from the American viewpoint,] war and insidious interventions of this sort may be costly, but the costs of not protecting the petrodollar system would be far higher” (Katusha, 2012).
The consequences would include “the loss of the exorbitant privilege of easy financing of large US deficits, both government and national. The political influence that American policy makers have internationally, including in international institutions, could also be diminished. If the euro were to overtake the dollar in a few decades, it would be a once-in-a-century event… [however, if] it happened to the pound in the last century, so who is to say it could not happen to the dollar in this?”(Frenkel& Chin, 2008).
Additionally, in a speech delivered by DSK back in late 2009, he stressed that even though he acknowledged that the US dollar was expected to remain the chief reserve currency for some (sic) time, “there have already been a number of valuable proposals for how to address concerns related to reserve currencies, including from prominent figures here in China. Some call for the creation of a new world reserve currency, possibly based on the Special Drawing Right (or SDR)—the composite currency issued by the IMF. Another possibility is for a multi-reserve currency system to emerge, with the euro, the yen, and the renminbi perhaps serving as co-equal anchors. These are useful ideas that will influence the future discussion of this issue”.
On that occasion, the then IMF Managing Director went ever farther when he explored the potential implications of the “unprecedented shift in relative wealth and economic power” –as the US intelligence community terms it (National Intelligence Council, 2008)– away from the West to the Eastern hemisphere. He explained that, given that the economic balance of power is being reconfigured, “for China and for Asia as a whole, a growing voice on the international stage means tremendous opportunities to contribute to the reshaping of the post-crisis global economy… China, no doubt, will play a leadership role in making the changes needed to embark on a new growth path that secures long-term economic success for all nations… [adding that] China’s role in the international policy debate has been rising in tandem with its growing economy. As a key member of the G-20, China is helping to elaborate the global policy priorities for the future, and devise solutions to global problems. And at the IMF, China is supporting our efforts to adapt and serve the needs of our member countries even more effectively”.(Strauss-Kahn, 2009).
Remarkably, in April 2011 –shortly before the abrupt end of DSK’s tenure as its Managing Director–, the IMF forecasted that, by 2016, China’s GDP, measured in terms of power purchasing parity, will have overtaken the United States as the largest economy on Earth. It is not news devoid of deeper ramifications because “It is the first time the IMF has put a time frame on the communist country’s inevitable march, and the forecast has profound implications for the balance of global power […moreover, said prediction casted] a deepening cloud over the future of the dollar as the world’s dominant currency as well as Washington’s attempts to close the budget gap and rein in the nation’s ballooning debt”. (Gardner, 2011).
IMF special studies and estimations go beyond the realm of intellectual or academic interests alone because “the most useful function that the IMF contributed to the debate about policy coordination was through the provision of data and forecasts” (Bordo& James, 2000). The importance of which is highlighted due to the fact that “[said intergovernmental organization's] board usually meets several times a week and carries out its work largely on the basis of papers prepared by IMF staff” (Reynaud &Vauday, 2007). Incidentally, said forecasts “are not purely based on economic considerations” (Dreher, et al., 2007).
The ultimate (geo)political significance of the aforementioned did not go unnoticed by political analysts. The IMF’s projection was certainly unwelcomed in Washington since “whether deserved or not, the IMF has a lot of credibility. By placing China as the number one economic power by the end of the next US presidential term, the IMF thrust a dagger through the heart of American hegemony. Washington’s power is based on America‘s economic supremacy. The IMF report said that this supremacy was at its end. This kind of announcement tells the political world that, as the headline read, ‘the age of America is over’” (Roberts, 2011). So, Strauss-Kahn possibly constituted a much formidable and dangerous challenge due to his “perfect position to shape policy and to persuade foreign heads of state that replacing the dollar is in their best interests” (Whitney, 2011).
Even if DSK’s provocative statements were not monitored by the mainstream media, they could not have gone unnoticed by neither the US intelligence community nor by financial players interested in maintaining the dollar hegemony. Needless to say, it is clear that said reckless pronouncements were not received warmly.
Strauss-Kahn is (was?) a member of the Western elite as a representative of Old Europe‘s Franco-German establishment –in contrast to the evident pro-Atlantist position held by President Sarkozy–. Regardless, DSK was presumably framed by law enforcement authorities closely linked to New York politician and Wall Street businessman Michael Bloomberg (Chossudovsky, 2011). In the cases of both Eliot Spitzer and Dominique Strauss-Kahn, some analysts suspect that “behind the curtain might be found investment bankers and international financiers” (Bucci, 2011).
Furthermore, it was reported that French politician Michelle Sabban stated that she “[was] convinced it is an international conspiracy [because] it’s the IMF they wanted to decapitate, not so much the Socialist primary candidate […adding that] it’s not like him. Everyone knows that his weakness is seduction, women. That’s how they got him” (Allen, 2011).
In the light of the above, It must not be overlooked that Russian President Vladimir Putin stated he disbelieved the official version of the DSK sex scandal because the “real political underlying reasons… [were] hard to evaluate” (Osborn, 2011). Taking into account his professional background as a KGB spook, Mr. Putin is clearly not unfamiliar with dirty tricks such as ‘honey traps’ and ‘character assassination’ and, more importantly, his opinion openly endorses the view that there were political factors involved (!).
There are other additional circumstances worth taken into consideration. Then under the helm of DSK, “on November 11-12, 2010, IMF member states agreed on a package of reforms, the core of which is a doubling of overall IMF quota to about $755 billion. In addition, there would be a significant shift of voting power to dynamic emerging market economies. If the reforms are implemented, the ten largest members of the IMF will consist of the United States, Japan, the four largest European economies (France, Germany, Italy, and the United Kingdom) and Brazil, China, India, and Russia” (Weiss, 2012).
Said proposed redistribution, needless to say, was not enthusiastically received in some circles whereas because it favors emerging powers. Meanwhile, “China is urging the IMF to […] accelerate its own internal governance reforms [i.e.] changes in voting shares to reflect changes in the interna­tional balance of economic power” (Chin & Wang, 2010).
Conversely, some pundits speculated that “Strauss-Kahn could just as easily been set up by rivals inside the IMF, as well as by rivals within the French political establishment… [due to the fact that] Wall Street and the US government also had strong reasons to eliminate him” (Roberts, 2011). Other commentators wondered if DSK’s actions –specially his promotion of SDR as alternative to the US Dollar– could have unleashed the ire of “some very powerful and well-connected people” (Whitney, 2011).
The apparent participation of operatives close to French President Nicolas Sarkozy, a staunch supporter of US foreign policy, suggests another factor worth scrutinizing beyond the undeclared goal of triggering ‘regime change’ at the IMF, namely, the possibility that DSK might have competed in the then incoming France’s presidential, successfully challenging then incumbent President Sarkozy: To be precise, “a Strauss-Kahn presidency and a ‘Socialist’ government would have been a serious setback for Washington, contributing to a major shift in Franco-American relations. It would have contributed to weakening Washington’s role on the European political chessboard, leading to a shift in the balance of power between America and ‘Old Europe‘ (namely the Franco-German alliance)” (Chossudovsky, 2011).
Both possibilities, it has to be borne in mind, are not mutually exclusive. Far from it: They reinforce one another.
…and wine maketh merry, but money answereth all things» –Ecclesiastes 10:19
There is way too much at stake regarding the evolution of monetary hegemony. As has been discussed throughout this paper, the indisputable symbiosis of geopolitics and finance is a concern of the highest political order for top decision makers and, as a result, there are powerful States and groups involved. Moreover, the IMF is a most critical multilateral organization whose proclivity is ultimately decisive. Thus, resourceful players want to ensure that such intergovernmental institution, far from being neutral, favors their interests at the expense of potential challengers, real or imagined.
In practical terms, the aforementioned implies that, as the issuer of the world’s top reserve currency, the US simply cannot afford to be a passive observer while the IMF promotes an alternative, however hypothetical, to the monetary system of dollar hegemony. The United States is likely to perceive any such attempt as a ‘deviation’ that needs to be corrected one way or another whereas financially capable competitors politically willing to undermine the dollar’s supremacy certainly consider the American currency’s reign as factor that somehow will need to be deconstructed in order to irrevocably dismantle one of the major elements of US power, contributing to catalyze its geopolitical decadence.
Thus, the monetary system is doomed to become an increasingly confrontational arena. At this point, the battle’s final results are, at best, unclear and cannot be precisely foreseen with an ample degree of accuracy. Yet only one thing is certain: Conflict is and will be inevitable, both among great powers as well as among currencies. Monetary war shall be waged through both conventional and unconventional means. Consequently, intensifying attacks and backlashes are to be expected either within the institutional framework of the IMF or, more importantly, outside of it. In other words, the future of monetary hegemony will not be defined peacefully and, of course, there will be havoc, losses and casualties.
In the light of the above, although it cannot be authoritatively confirmed that there was a clandestine conspiracy organized by a powerful cabal of financial and political forces at the highest levels to unseat Dominique Strauss-Kahn as the IMF Managing Director, the circumstantial evidence analytically hereby scrutinized leads to the reasonable conclusion that the ultimate goal of such plot involving the judicialization of monetary geopolitics was to prevent the IMF from becoming a solid platform for launching any initiative considered as a credible alternative to the dollar hegemony, thus impeding any meaningful reform of the international monetary system’s current distribution of power any time soon. Geopolitically speaking, this hypothetical interpretation does make sense.
On the other hand, the determination to eliminate a competitive adversary who was acquiring enough political capital and momentum to defy President Sarkozy’s bid for reelection in 2012 represented no more than a secondary concern.
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[1]SDRs are supplementary foreign exchange reserve assets held by member countries and maintained by the IMF and their value is based on four international currencies: the US dollar, the euro, the yen and the pound and can be exchanged for freely usable currencies. They represent a potential claim on the freely usable currencies of IMF member states.