Saturday, April 22, 2006

Central Bank of Sweden to Diversify Away from Dollar

China and Japan are not the only central banks wanting to diversify. Sweden is now joining the crowd, according to an article (in French) at boursorama.com.

Sweden will increase Euro reserves to 50% (from 37%) and decrease dollars to 20% (from 37%.)


[Thanks to banknoty.pl for the image.]


Most economics and investment "experts" will say that the dollar will come out of this okay, if only because it's still pretty much the best game in town; but that superiority is waning, and speculators continue to fly their bets all over the globe in search of a quick profit, i.e. dollars to foreign currency and/or assets back to dollars, etc. -- to wit the havoc wrecked in Iceland and New Zealand recently. (NYT source -- You may have to log in to read article.) I hear Australia, Turkey and Hungary are the next on the list, so those central banks, beware. (See more on this subject, in French, at boursorama.com.)

I think everyone knows the dollar is inflated; but every currency around the world seems to be trying to follow suit. Inflating the monetary unit has become an insidious game that profits the wily central governments and the speculators at the expense of the modest-means little guy who doesn't have the knowledge or the extra cash to take advantage of the various bubbles that pop up around him stealing his non-bubbling salary. His reaction is just to spend it as fast as he can, and it's no wonder.

Maybe a thousand wrongs do make a right when it comes to fiat (not standardized) money, but I'm convinced that someday the world's economies will have to pay the price. As Hayek said (and I paraphrase), over-expansion of credit will come to the inevitable end of its run, assuming history is the judge and jury; and it is only a question of whether it will be a decades-long, slow, torturing slide or a violent and fatal overnight crash.

All of this is good news for gold. As I say, you can take gold out of the standard, but you can't take the standard out of gold.

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