The future of the US Dollar. Chapter 1. Outlook from 2013
First published in Russian for Coins-2013 Conference in Moscow.
Inspired by the writings of Martin Armstrong (armstrongeconomics.com)
As a result of the 2008 crisis, the US dollar confirmed the status of the world reserve currency. At the same time, its closest rival, the Euro, dims due to the absence of a single debt market — Eurobonds.
Nevertheless, in the next 5 years, the dollar will endure a real evolution. This will be reflected in cash circulation and taxation within the USA and abroad.
Time and Dollar
Over the past 150 years of the circulation of the paper dollar — Greenbacks experienced several serious monetary reforms. They were a response to one or another crisis. According to the ECM (Economic Confidence Model by Martin Armstrong), the monetary shifts take place every ~50 years, the next — falls in 2017.
The key monetary events were:
1) The issue of the United States treasury notes or greenbacks (April 2, 1862) for financing the Civil War, which for the first time were not provided with either gold or coupon payments. Thus, the unsecured paper currency became the answer to the war, for which there was no gold & silver in the government treasury.
After the war, along with greenbacks, there were National Bank Notes of regional banks (National Banking Act 1863, 90% of the volume was to be placed in treasury bonds), Silver Certificates (for SilverDollar), Gold Coin Certificates (in banks reserves) and Refunding Certificates (to attract the public to the public debt market, at 4% per annum).
2) The next event was the panic of 1907, which eventually led to the founding of the US Federal Reserve System (aka the Central Bank) to regulate the liquidity crisis in the banking system and the financial markets.
With the advent of the Federal Reserve, there were Federal Reserve Notes by the FRS since 1914 and Federal Reserve Bank Notes, or “National Currency” since 1915. Thus, it was monetary system of the United States treasury notes along with banknotes of the FRS and Federal Reserve Banks.
The FRB’s Federal Reserve Notes was not provided with treasury bonds and the responsibility for their payment was borne by the US government. Federal Reserve Bank Notes (or “National Currency”) were issued by individual FR Banks and they were provided with treasury bonds.
3) Another crisis was associated with the erroneous construction of the Bretton Woods monetary system, which began to fail in the 60s of the XX-th century.
The process of withdrawing Treasury Silver Certificates from circulation began in 1964 because of the silver bullion and coins deficit in the country. After that the USA canceled less common United States treasury notes from 1966 to the 1970s.
Thus, the USA has completely switched to bank notes of the FRS (or FRB).
At the same time, there was a process of depletion of the US reserves in gold along with the accelerated growth of the monetary base. As a result, Congress abolished the 25% dollar coverage of gold in 1968 and Bretton Woods monetary system with the fixed exchange rates was replaced by the new one with “freely convertible currencies” with floating exchange rates (aka Hard Currencies) in 1971.
4) The last 2008 year crisis grew into a “sovereign debt crisis” of developed economies countries. Given the crisis and the cyclical nature of reforms we can expect a new monetary reform in 2015–2020. Its essence is the rejection of paper money in favor of electronic form for “optimization” of accounting transactions and tax collection. The catalyst for the reform will be a war or a new recession.
But now there is a new 100 US dollars bill coming in circulation in 2013. Probably, this is the image of the last paper “pre-reform” US dollar.
As a result of the new monetary reform, electronic dollars (we call it “Smart money”) used in Smart Phones will replace not only paper money and coins, but also popular bank credit and debit cards.
Link to the original article http://gold10.ru/upload/medialibrary/643/643e97e5ab72bc5b82186c3fd528cf34.pdf
Link to the full PDF file with images https://vk.com/public159083560