by Alex Christoforou, The Duran:
A fine RT interview with Moussa Ibrahim, Gaddafi’s ex-spokesperson. While pointing out the role of NATO and mainstream media in Libya’s destruction, Ibrahim accepts and explains the blind spots / failures in Gaddafi’s rule. Three things he mentions: that they failed to shift away [diversify] from the oil-export economic model, that they didn’t seek an alliance with Russia and China, that their political process wasn’t inclusive enough. Ibrahim also talks about the good things Gaddafi’s rule achieved, in the larger context of African struggle for liberation and economic independence. Gaddafi was hoping to accumulate 4 thousand tons of gold [as reserves] for his pan-national project of an African Central Bank alongside the creation of an African currency.
I have to say that while the goal is noble and strategic, the way of going about it wasn’t inspired. Sure, gold is a commodity which can be used as a hedge against inflation, but in order to build up stock of it [which incurs physical costs of transport and storage], they had to net export oil in order to purchase foreign currency with which to buy the gold. It would have been a lot simpler and less costly [in real terms] to have this African Central Bank issue a free floating fiat currency, controlled by a democratic board composed of African member states. Give permanent extrinsic value to this currency through taxation [preferably a land-value tax] and issuing it to employ labor, land, and capital [machinery and equipment] for productive purposes which benefit the African nations. You don’t need physical commodity reserves in order to facilitate settlement payments, provide overdrafts, buy Government and or private sector assets or liabilities, or provide loans for long term investment. The classical gold standard era [1880-1914] is a myth. Credit [mostly unbacked by metal] was the predominant form of money throughout that entire period.
To illustrate the power of fiat, these two examples should suffice… The Allies [USSR included] won WW2 using fiat money. Had they stuck to the gold standard during that time [i.e. allowing the currency to be redeemed in metal], they would have gone bankrupt and lost the conflict. Nazi Germany became an economic and military superpower without gold. At present, it’s estimated that 16 percent of the world’s gold and 22 percent of its silver is currently sitting inside tech all over Japan. That’s a productive role for these commodities, instead of using them as a speculative tool. And just like commodities, IOUs [credit, debt, money, contracts] can be used for productive or speculative purposes. Don’t torch the paper along with the ink and quill, just remove the bad clauses in the contract – another way of saying don’t throw the baby out with the [dirty] bath water.
Hitler said, “We were not foolish enough to make a currency [backed by] gold, of which we had none, but for every mark that was issued we required the equivalent of a mark’s worth of work done or goods produced… we laugh at the time our national financiers held the view that the value of a currency is regulated by the gold and securities lying in the vaults of a state bank.” In 1833, economist Friedrich List argued the same principle. “People will probably ask me, where will Bavaria get the money to complete such giant works [railways]? I answer, that I have not yet seen any silver or gold in any of the canals or railways. To build them we use only consumer goods, steel, stones, wood, manpower, the power of animals. But is there not a surplus of all this in Bavaria? To the extent that we transform this surplus into canals and railways, which are not yet in existence, we create permanent and enduring value, we create an instrument which doubles the productive power of the entire nation. The money, however, does not leave the country, it only settles accounts.”
What the detractors of fiat money don’t understand is the distinction between IOUs and commodities, between IOUs recorded in expensive medium [gold, silver etc] and inexpensive medium [paper, plastic, electronic entries]. Fiat money has no intrinsic value, but it does have extrinsic value. The trap developing nations fall into is accruing reserves in foreign currencies [numbers which they own, but that exist on the electronic spreadsheets of foreign central banks]. This is alright so long as those countries you’re exporting to remain friendly. If they’re geopolitically aligned against you, however, they can freeze those accounts you own – undoing all the work you put into exporting goods and resources in exchange for their money. And now you’re left with no foreign funds necessary to pay for imports.