The new Rupee : The new India

Evoking national pride and international attention, the Indian rupee attained a new avatar in its new symbol. Backed by over a trillion dollar strong economy, the Rupee is now set to go places and whooping it out loud to the world – the very purpose of giving Indian rupee a distinct and identifiable symbol of it‟s own.

Rupee now joins the elite club of super strong currencies of US Dollar ($), Japanese Yen (¥), British Pound (£) and EU’s Euro (€), having internationally accepted symbols for them. The Indian growth story is very much intact and is growing strength by strength every passing day. And in this context this move is seen as a symbol not only of Indian currency but also of the Indian ambition to regain its lost glory and again become a global superpower.

“It’s a big statement on the Indian currency. It would lend a distinctive character and identity to the currency and further highlight the strength and robustness of the Indian economy as also a favoured destination for global investments,” said Ms. Ambika Soni, Information & Broadcasting Minister, at a Cabinet meeting.

Apart from all this hoopla, the new symbol shall also be serving the purpose of differentiating Indian rupee from its troublesome neighboring countries — Pakistan, Nepal, Sri Lanka and Indonesia — similarly known rupee or rupiah. But all this symbolism shall not hold any importance unless it‟s backed by bold and efficient government policies.

The currency has got an international face but is still to become international in its character. With the introduction of this symbol, the debate surrounding complete capital account convertibility is again expected to shoot up. We are yet to deal with our problems of rampant corruption, astounding poverty and in recent years of income inequality.

Long term implications of the new symbol shall be visible in days to come. But it sure is a time to acknowledge and celebrate our achievements of the past 20 years of economic reforms and gear ourselves for the arduous task of realizing the Indian dream that lies ahead.

– Shreyank Jamar.

Currency: Our Past, Present and Future!!!

Money has always been an important part of life. Ever since man was introduced to occupation, there was a need to buy and sell. In the very early days there was obviously no common medium of transaction and valuation was essentially through exchange or barter. Soon man realized the need of a common instrument in transactions and introduced Commodity Money. Commodity money is basically money whose value is derived from what it is made up of. Gold, Silver and Copper coins issued by the Mughals are one example of this. In today’s day and age, owing to the large fluctuations in the value of commodities such currency is extremely difficult to maintain, produce and circulate and creates an overdependence on the availability of the commodity to meet short and long term needs. The next step in the evolution was issuing notes and coins that were guaranteed by a certain amount of gold or other precious metal. Such a practice was extremely useful and efficiently for atleast a few hundred years. As long as the government could procure enough gold to meet the short and long-term money supply in the economy a gold backed currency was ideal. Unfortunately this concept collapsed and brought with it one of the most severe depressions the world has ever seen.

The Great Depression was caused due to extreme disparity and concentration of wealth but this is generally the hallmark of small recessions too. Arguably, the Depression was created due to mismanagement rather than by the situation. The depression kicked in due to the failure of the entire banking system. This was lead by the collapse of one of the largest public banks – The Bank of the United States. The failure of any public bank creates great panic in depositors and creates a sudden rush for withdrawal. Unfortunately, at the time the gold backed currency system created a lending limit of the Federal Reserve. The failure to bail out The Bank of the United States created a domino effect and the eventual collapse of a massive proportion of deposits and investments. The failure of the financial system, the backbone of any economy would inevitably lead to an overall collapse of an already languishing economy.

The great depression taught us a lot and one big change it brought was the introduction of Fiat Currencies. Fiat Currencies are not backed by any physical commodity but basically valued by its usefulness. The government basically accepts taxes in the currency and therefore the health of the economy and the corresponding taxation create the demand for the currency. The valuation of such a currency is hence determined by the efficacy of tax collection and the demand for the currency. A relatively high economic growth and a minimal or nil deficit would always cause the appreciation of a currency. Hence the concept is sound and helps in flexible valuation of currency so the Central Bank can control the money supply in the economy.

There is however a slight downside to it. Considering the inverse relationship between the price of globally traded commodities and the currency in which it is traded, we must understand that if there is a standard currency used for trading, the fiscal and monetary policy controlling currency has a profound impact on global prices. In the present case, the American dollar is the globally accepted currency with most of the commodity trade being Dollar denominated.

Now the question is when the monetary and fiscal policy of a country determines to a great extent the valuation of the currency, we probably need to relook the priorities of the American Federal Reserve. The Federal Reserve is clearly aimed at overlooking inflation for the sake of growth. The recent spike in commodity prices can be greatly attributed to the rather steep devaluation of the US currency due to their fiscal and monetary policies. A record deficit and rather cheap availability of credit has seen the USD taking a dive and commodity prices sky rocketing. Although the United States is the biggest economy in the world, the overdependence on the USD for trading in the international market leads to prices becoming highly sensitive to the American environment. The selfishness seen in the American policies pushes us to look at other currencies that would be more suitable and sensitive to the international needs such that a right balance is struck between inflation and growth. Alternatives include the Euro or the Japanese Yen. The overall health of the American economy also seems to be a big question mark with the American economy seeing a severe financial crisis every now and then. Consumption paced by credit seems to cause issues and bubbles in the American economy and the selfishly prioritized policies seem to be good enough reasons to move away from the dollar. A change from a dollar backed currency would in effect shield us partly from American policies and should be an intelligent move as long as the new currency adopted is governed in a more responsible manner. This wouldn’t be the first time such a change has happened. With the devaluation of the dollar hitting exports hard in India, some of the big names are shifting to Euro billing. This sets a precedent although in a very small way and in a way urges us to move away from the dollar to a better regulated currency. In the future such a step would probably have to be taken at some point of time. It is extremely unlikely that the entire world would ever agree to be united under a single currency however it isn’t hard to imagine a day when the dollar wouldn’t remain the favorite currency of the world.

– The Akhil Sharma

Petro Euro (€)

Subject: Why the Dollar Bubble is about to Burst – A must read

It also corroborates the hypothesis that the REAL reason why the US attacked Iraq was because Saddam Hussein had decided to move Iraq’s Oil trade from US$ to Euro.

London – 24 May, 2006

The Voice (issue 264 – 11th May) ran an article beginning, “Iran has really gone and done it now. No, they haven’t sent their first nuclear sub in to the Persian Gulf. They are about to launch something much more deadly — next week the Iran Bourse will open to trade oil, not in dollars but in Euros…” This apparently insignificant event has consequences far greater for the US people, indeed all for us all, than is imaginable.

Currently almost all oil buying and selling is in US-dollars through exchanges in London and New York. It is not accidental that they are both US-owned.

The Wall Street crash in 1929 sparked off global depression and World War II. During that war the US supplied provisions and ammunitions to all its allies, refusing currency and demanding gold payments in exchange.

By 1945, 80% of the world’s gold was sitting in US vaults. The dollar became the one undisputed global reserve currency — it was treated world-wide as `safer than gold’. The Bretton Woods agreement was established.

The US took full advantage over the next decades and printed dollars like there was no tomorrow. The US exported many mountains of dollars, paying for ever-increasing amounts of commodities, tax cuts for the rich, many wars abroad, mercenaries, spies and politicians the world over. You see, this did not affect inflation at home! The US got it all for free! Well, maybe for a forest or two.

Over subsequent decades the world’s vaults bulged at the seams and more and more vaults were built, just for US dollars. Each year, the US spends many more dollars abroad that at home. Analysts pretty much agree that outside the US, of the savings, or reserves, of all other countries, in gold and all currencies — that a massive 66% of this total wealth is in US dollars!

In 1971 several countries simultaneously tried to sell a small portion of their dollars to the US for gold. Krassimir Petrov, (Ph. D. in Economics at Ohio University) recently wrote, “The US Government defaulted on its payment on August 15, 1971. While popular spin told the story of `severing the link between the dollar and gold’, in reality the denial to pay back in gold was an act of bankruptcy by the US Government.” The 1945 Bretton Woods agreement was unilaterally smashed.

The dollar and US economy were on a precipice resembling Germany in 1929. The US now had to find a way for the rest of the world to believe and have faith in the paper dollar. The solution was in oil, in the petrodollar. The US viciously bullied first Saudi Arabia and then OPEC to sell oil for dollars only — it worked, the dollar was saved. Now countries had to keep dollars to buy much needed oil. And the US could buy oil all over the world, free of charge. What a Houdini for the US! Oil replaced gold as the new foundation to stop the paper dollar sinking.

Since 1971, the US printed even more mountains of dollars to spend abroad. The trade deficit grew and grew. The US sucked-in much of the world’s products for next to nothing. More vaults were built.

Expert, Cóilínn Nunan, wrote in 2003, “The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars.”

Dr Bulent Gukay of Keele University recently wrote, “This system of the US dollar acting as global reserve currency in oil trade keeps the demand for the dollar `artificially’ high. This enables the US to carry out printing dollars at the price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the US has no serious challengers, and the other states have confidence in the US dollar, the system functions.”

Until recently, the US-dollar has been safe. However, since 1990 Western Europe has been busy growing, swallowing up central and Eastern Europe. French and German bosses were jealous of the US ability to buy goods and people the world over for nothing. They wanted a slice of the free cake too. Further, they now had the power and established the euro in late 1999 against massive US-inspired opposition across Europe, especially from Britain – paid for in dollars of course. But the euro succeeded.

Only months after the euro-launch, Saddam’s Iraq announced it was switching from selling oil in dollars only, to Euros only — breaking the OPEC agreement. Iran, Russia, Venezuela, Libya, all began talking openly of switching too — were the floodgates about to be opened?

Then aeroplanes flew into the twin-towers in September 2001. Was this another Houdini chance to save the US “petrodollar” and the biggest financial/economic crash in history? War preparations began in the US. But first war-fever had to be created — and truth was the first casualty. Other oil producing countries watched-on. In 2000 Iraq began selling oil in Euros. In 2002, Iraq changed all their petro-dollars in their vaults into Euros. A few months later, the US began their invasion of Iraq.

The whole world was watching: very few aware that the US was engaging in the first oil currency, or petrodollar war. After the invasion of Iraq in March 2003, remember, the US secured oil areas first. Their first sales in August were, of course, in dollars, again. The only government building in Baghdad not bombed was the Oil Ministry! It does not matter how many people are murdered — for the US, the petrodollar must be saved as the only way to buy and sell oil — otherwise the US economy will crash, and much more besides.

In early 2003, Hugo Chavez, President of Venezuela talked openly of selling half of its oil in Euros (the other half is bought by the US). On 12 April 2003, the US-supported business leaders and some generals in Venezuela kidnapped Chavez and attempted a coup. The masses rose against this and the Army followed suit. The coup failed. This was bad for the US.

In November 2000 the euro/dollar was at $0.82 dollars, its lowest ever, and still diving, but when Iraq started selling oil in Euros, the euro dive was halted. In April 2002 senior OPEC representatives talked about trading in Euros and the euro shot up. In June 2003 the US occupiers of Iraq switched trading back to dollars and the euro fell against the dollar again. In August 2003 Iran starts to sell oil in Euros to some European countries and the euro rises sharply. In the winter of 2003-4 Russian and OPEC politicians talked seriously of switching oil/gas sales to the euro and the euro rose. In February 2004 OPEC met and made no decision to turn to the euro — and yes, the euro fell against the dollar. In June 2004 Iran announced it would build an oil bourse to rival London and New York, and again, the euro rose. The euro stands at $1.27 and has been climbing of late.

On 5th May, 2006 Iran registered its own Oil Bourse, the IOB. Not only are they now selling oil in Euros from abroad — they have established an actual Oil Bourse, a global trading centre for all countries to buy and sell their oil!

In Chavez’s recent visit to London; he talked openly about supporting the Iranian Oil Bourse, and selling oil in Euros. When asked in London about the new arms embargo imposed by the US against Venezuela, Chavez prophetically dismissed the US as “a paper tiger”.

Currently, almost all of the world’s oil is sold on the NYMEX, New York Mercantile Exchange, or the IPE, London’s International Petroleum Exchange. Both are owned by US citizens and both sell and buy only in US dollars. The success of the Iran Oil Bourse makes sense to Europe, which buys 70% of Iran ‘s oil. It makes sense for Russia, which sells 66% of its oil to Europe. But worse for the US, China and India have already stated they are very interested in the new Iranian Oil Bourse.

If there is a tactical-nuclear strike on – déjà-vu – `weapons of mass destruction’ in Iran, who would bet against a certain Oil Exchange and more, being bombed too?

And worse for Bush. It makes sense for Europe, China, India and Japan– as well as all the other countries mentioned above — to buy and sell oil in Euro’s. They will certainly have to stock-up on euros now, and they will sell dollars to do so. The euro is far more stable than the debt-ridden dollar. The IMF has recently highlighted US economic difficulties and the trade deficit strangling the US– there is no way out.

The problem for so many countries now is how to get rid of their vaults full of dollars, before it crashes? And the US has bullied so many countries for so many decades around the world, that many will see a chance to kick the bully back. The US cannot accept even 5% of the world’s dollars — it would crash the US economy dragging much of the world with it, especially Britain.

To survive, as the Scottish Socialist Voice article stated, “the US, needs to generate a trade surplus to get out of this one. Problem is it can’t.” This is spot on. To do that they must force US workers into near slavery, to get paid less than Chinese or Indian workers. We all know that this will not happen.

What will happen in the US? Chaos for sure. Maybe a workers revolution, but looking at the situation as it is now, it is more likely to be a re-run of Germany post-1929, and some form of extreme-right mass movement will emerge.

Does Europe and China/Asia have the economic independence and strength to stop the whole world’s economies collapsing with the US? Their vaults are full to the brim with dollars.

The US has to find a way to pay for its dollar-imperialist exploitation of the world since 1945. Somehow, eventually, it has to account for every dollar in every vault in the world.

Bombing Iran could backfire tremendously. It would bring Iran openly into the war in Iraq, behind the Shiite majority. The US cannot cope even now with the much smaller Iraqi insurgency. Perhaps the US will feed into the Sunni v Shiite conflict and turn it into a wider Middle-East civil-war. However, this is so dangerous for global oil supplies. Further, they know that this would be temporary, as some country somewhere else, will establish a euro-oil-exchange, perhaps in Brussels.

There is one `solution’ — scrap the dollar and print a whole new currency for the US. This will destroy 66% of the rest of the world’s savings/reserves in one swoop. Imagine the implications? Such are the desperate things now swimming around heads in the White House, Wall Street and Pentagon.

Another is to do as Germany did, just before invading Poland in 1938. The Nazis filmed a mock Polish Army attack on Germany, to win hearts and minds at home. But again, this is a finger in the dam. So, how is the US going to escape this time? The only global arena of total superiority left is military. Who knows what horrors lie ahead. A new world war is one tool by which the US could discipline its `allies’ into keeping the dollar in their vaults.

The task of socialists today is to explain to as many as possible, especially our class, that the coming crisis belongs purely to capitalism and (dollar) imperialism. Not people of other cultures, not Islam, not the axis of evil or their so-called WMDs. Their system alone is to blame.

The new Iranian Oil Bourse, the IOB, is situated in a new building on the free-trade-zone island of Kish, in the Persian Gulf. Its computers and software are all set to go. The IOB was supposed to be up and running last March, but many pressures forced a postponement. Where the pressure came from is obvious. It was internationally registered on 5th May and supposed to open mid-May, but its opening was put off, some saying the oil-mafia was involved, along with much international pressure. Just Google `petro euro’, and the story lies before you.

From now on, anyone in the know will wake up every morning and, even before coffee, will check out the latest exchange rate between the euro and dollar.

—Pranay Jain