The Pankian Metaphor 3053

It is not a stetching exercise at all. No new degrees of freedom here. Currencies today are just IOU notes, except they are issued under a government monopoly. The world has agreed that some of these IOU notes called money are more equal than the others, and that the IOU note that has "US dollar", "E pluribus unum" and "federal reserve" pritned on it is the most equal of them all. That does not change it's fundamental nature. The only hard-core promises attached to it are that you can settle your taxes with it, change it for a different denomination, securely store it, and that it has a monopoly on storefront sales and debt collection where the US government is in charge.

The US governement has also made a weak promise they won't print too many of these notes, and a semi-opaque process is in place to control the amount of such notes in circulation.

Contrast this with a common stock certificate. This is a guarantee of ownership of a part of a commercial company that actually makes something, and is a lot closer to having a tangible buttet in your hand than a dollar bill is.

Now, when you are to set a fair value to these IOU's you don't want to do so when the issuer controls all the cards, do you? You want some freedom from the long arm of the issuer. After all, they could start doing all kinds of stuff to you, like taxes, controls etc.

The US bonds and currencies markets perform this function for every other currency in the world. But who are to be this sanctuary for the dollar?

The second strongest financial market in the world, London, stepped up to the task in the 1970's and has done a splendid job of it ever since.

A disturbing trend is that the similar development for the Euro is not happening in the US. It happens in the far east.

It indicates that there is a large sector of the world economy that distrusts the US so much it does not want to use it's currency nor place the market of a second currency there, and is willing to back this view with serious amounts of money.

-- mrr