In the Minutes Of Kissinger Meeting On Gold, 1974, we can read how Henry Kissinger, National Security Advisor and Secretary Of State at the time, was discussing the matter of preserving US dollar hegemony.
“After Nixon “temporarily” suspended the convertibility of dollars into gold in 1971, because evil international speculators were attacking the US dollar, some of the European countries were not amused the US broke its promise. In the years that followed a diplomatic battle ensued; the US wanted to completely phase out gold from the monetary system in order to preserve the US dollar hegemony, while other countries wanted a comeback and revalue their gold holdings” (In Gold We Trust, 2013)
You are trying to get me started on a long dissertation. Luckily, I had written a series on gold regarding the nature of money and currency – nearly 2 years ago already: http://aceloewgold.com/2011/12/03/doublewood-the-story-of-gold/
The Kissinger minutes relates to what I call the Euro-American Currency War I, back in 1970-1975. The E-A Currency War II began with the birth of the Euro in 1999 and ended with the conclusion of the Kosovo War. The E-A Currency War III started in 2011 with the Euro PIIGS crisis, which have yet to conclude, since both sides resort to printing money to sustain the unsustainable for the time being. The rise of China and the potential role of the RMB are potentially turning the scenario into “Romance of The Three Kingdoms”.
In reference to Kissinger, he also famously said this: “If you control food you control the people; if you control oil you control the nations; if you control currency you control the world.”
In the early 1970s, the Bretton Woods system of USD-gold exchange standard was abandoned. The Europeans had more gold than the US by then (after WWII, US had almost 80% of the world’s gold, but because of trade and Vietnam War, we had to borrow and sell gold to the rest of the world who demanded it for USD, which we promise as their right under Bretton Woods). However, they did not have a unified currency to challenge the USD; instead, the most they could pose as a challenge to dollar supremacy was to urge for the creation of SDR (“special drawing rights”), which did not take off.
Under Kissinger and his successor Brzezinski, we managed to prevail during the Mid-East wars and the rigged energy crises of the 1970s. Despite being off the gold-exchange standard,we managed to secure strategic control over the main supply of the world’s oil. Our almighty dollar thus warded off the first challenge by the Europeans, enshrined when Saudi Arabia led other major OPEC nations to commit to the exclusive use of the US currency in exchange for oil. And so the world continued at least the next 40 years with the USD as the universal currency — In God (sic Oil) We Trust.
Of course, Kissinger’s statement has to be modified today. Firstly, oil as the strategic resource is being eroded by cyberspace and data. Secondly, the distribution of oil supply sources has dispersed so that it will no longer be possible for us to control enough of them to bolster currency hegemony (thus, the oil factor of the Middle East is dwindling in significance for our national security).
What next? I have always viewed gold and fiat currency as the Yin and Yang of money. It’s a matter of balance. Unlike many passionate economics “experts” and “philosophers”, I am objective about gold in the history of human society. I think Section 1 on my Story of Gold tells you pretty much what I think about gold as money and other forms of fiat currencies as money. Gold only matters when humans have failed. And lately, humans have collectively failed.
We’ll see …