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Source: Market Oracle
Like its metallic counterpart, the euro currency has the tendency to make other currencies it comes into contact with more like itself – radioactive. The inevitable result is the death of (natural) national currency systems.
The Nature of the Euro-Beast.
The euro’s architects have recognized that the worldwide dollar-reserve system cannot be sustained. The reason: The US Fed’s dual – and conflicting – mandate of price-stability and full employment. The Fed was sold to Congress via the ‘hook’ that it would allow Congress to both control inflation and maximize employment if only Congress would agree to set up this version of a central bank in the US.
As we all know, there are very few politicians who can and will resist such a temptation.
Since that proposition has predictably turned into a slow-moving disaster, the euro architects figured out that they will have to give up some of the power bestowed upon them by centralized control of interest. They did this by limiting the ECB’s function to maintaining “price stability”, i.e., limiting credit-inflation.
In so doing, they curtailed the ECB’s ability to goose the markets on demand in order paper-over occasional and inevitable economic downturns. At the same time, they took the controls off the price of gold by (a) trying to maintain roughly fifteen percent of the system’s forex reserves in the form of gold, and (b) by revaluing its gold reserves quarterly at market prices.
This is in no way a form of gold backing in the traditional sense. There is no exchangeability of euros to gold at a legislatively fixed rate, but it shows that the euro is set up to be supported by a rising price of gold, rather than being undermined by it.
There has been and continues to be much talk about the euro being designed to ultimately take over the dollar’s reserve-currency function. That is not the case, at least not completely.
If you were to ask whether the euro was in fact designed with that goal in mind, the answer would have to be a definite yes and no. “Yes” in the sense that the euro was intended to incrementally displace the dollar, and “no” in the sense that the euro would not try to assume the full burden of the dollar’s world reserve currency function.
Because of the factors mentioned earlier, the euro can’t (or rather won’t) be inflated fast enough to spread around the world and fuel global malinvestment (er, … economic growth) the way the dollar did.
Instead, the hidden idea behind the euro was to literally force the creation of other regional currencies throughout the world.
By inevitably competing with the dollar for its reserve function, the euro creators did sign the ultimate death warrant for the US dollar system. Yet, by having this “anti-inflation” bias (which is not really adverse to inflating the money supply at all, but merely tends to slow the process somewhat) any attempt to merely substitute the euro for the dollar worldwide becomes simply self-defeating..
The only solution, then, is to force the creation of other currency unions so that the euro doesn’t have to completely take over the dollar’s old function.
At least, that’s what the plan was.
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