Global Financial Reset: Commodity Money System and the Quantum Financial System
Is there Going to be a Global Financial Reset?
By Dinar Chronicles | December 1, 2023
A few points on this complex issue:
The global financial system is very complex, interconnected, and dynamic. Major events like economic crises, wars, pandemics, or technological innovations could potentially trigger significant changes to aspects of the system over time. However, predicting specific outcomes is extremely difficult.
Some analysts and commentators have speculated about or predicted some form of global financial “reset” or overhaul of institutions like the International Monetary Fund. However, there is no consensus among experts that something of this scale or nature is likely to occur in the near future.
Individual countries and regional blocs do occasionally undergo financial crises that lead policymakers to substantially reform their banking regulations, monetary policies, or financial safety nets. These crisis-driven reforms could be seen as national or regional “resets.”
Ongoing trends like digitalization of finance, climate change risk, and emerging market growth do appear likely to drive some evolution of global finance, but the timing and impacts of those changes are unclear.
What are some potential changes that experts have speculated could occur as part of a global financial “reset”?
Experts have speculated about various potential changes that could occur as part of a hypothetical global financial “reset,” though opinions vary widely.
Reform of major global financial institutions like the IMF and World Bank: This could involve changes to voting rights, governance structures, and objectives to give more influence to emerging economies.
Changes to the international monetary system: Some possibilities discussed include returning to a gold or commodity-based standard, implementation of a Quantum Financial System (QFS), increased use of SDRs, and multiple global reserve currencies rather than just the US dollar.
Debt restructuring or forgiveness: This could involve coordinated write-downs or relief for highly indebted nations. Some experts see this as necessary to restore growth.
Banking regulation reform: Stricter global banking rules and coordinated policy changes have been considered to avoid future financial crises and bailouts. Ideas include higher capital requirements, bank breakups, and unified global banking supervision.
Shift towards alternative financial systems and currencies: Some speculate greater use of cryptocurrencies, Islamic finance principles, or peer-to-peer finance models could integrate with or displace current systems.
In summary, there are huge political, economic, and coordination hurdles to realizing reforms on such a global scale. There is no consensus on likelihood or timing, and changes would likely be gradual. But unexpected crises (Black Swan Event, EBS, etc) can also prompt sudden reform. Ultimately there are more unknowns than predictions when it comes to the global financial system’s future evolution. However, the future remains uncertain. Also, who knows what goes on behind closed doors.
Commodity-based Currency System
A commodity-based currency system is a monetary system where the value of a country’s currency is directly tied to the value of a specific commodity, like gold, oil or other natural resources. This system is also known as a commodity money system. Here’s an overview:
1. Gold Standard: This is the most historically common form of a commodity-based currency system. Under a gold standard, the value of currency is fixed in terms of gold. For each unit of currency issued, there is a corresponding amount of gold stored in a central location. The United States was on a gold standard up until 1971.
2. Silver Standard: Similar to the gold standard, a silver standard ties the value of currency to the price of silver.
3. Oil/Petroleum Standard: Some oil-rich nations have considered linking their currency to the price of oil. However, the commodity’s price volatility can lead to economic instability.
4. Other Resources: Any valuable resource can theoretically be used. For instance, countries like Russia and China have considered backing their currencies with a basket of commodities, not just one.
Commodity-based currency systems have been largely replaced by fiat money systems. Fiat money has no intrinsic value but is circulated by government decree.
Advantages of a Commodity-Based Currency System:
1. Price Stability: Backing a currency with a commodity often leads to more price stability because it can limit the amount of money in circulation to the amount of the commodity reserves.
2. Reduces Inflation: It prevents the government from printing too much money as every unit of currency needs to have a corresponding amount of the commodity in reserve, therefore reducing the risk of inflation.
3. Enhances Trust: It can increase confidence in a nation’s currency since it guarantees that the money can be exchanged for a set amount of a physical commodity.
4. Global Parity: A standard like gold is universal in nature and thus it provides a common measure of value internationally, supporting exchange rates stability.
Disadvantages of a Commodity-Based Currency System:
1. Limited Flexibility: This system can severely limit the flexibility of monetary policy. Under a fiat system, the government and central banks have the ability to use monetary policy to stimulate the economy or curb inflation; this tool is cut off in a commodity-based system.
2. Dependency on the Commodity’s Value: If the value of the commodity itself experiences a sudden drop, the country’s entire economy can suffer deeply.
3. Limited Currency Supply: The money supply is limited to the amount of the commodity available, which can limit the economic growth. If the economy grows faster than the country’s ability to produce or buy the commodity, deflation can occur.
4. Expensive to Implement and Maintain: The costs of storing, transferring, and protecting large quantities of a physical commodity can be substantial.
Remember, the effectiveness of a monetary system largely depends on how well it is managed. Stability, trust, and growth are all possible under many types of systems, given prudent and transparent management from the government or central bank.
Below are 3 countries that could potentially benefit from switching to a commodity-based currency system.
Vietnam and the Vietnamese Dong
The future of the Vietnamese Dong (VND) is dependent on multiple factors, both internal and external, which include:
1. Economic Growth: Vietnam has been one of the fastest-growing economies in the world, which could lead to a stronger currency. However, this growth must be sustainable for it to impact the Dong’s value positively.
2. Government Policies: Decisions by the Vietnamese government and the State Bank of Vietnam can have an important impact on the Dong. Policies related to monetary control, inflation, foreign direct investment, and liberalization of currency can greatly affect the currency’s future.
3. Global Economic Conditions: External factors such as the health of the global economy, trade wars, global demand for Vietnamese goods, and changes in currencies of major trading partners can also have an impact on the VND.
4. Inflation Rates: A consistent control of inflation rate in Vietnam will strengthen confidence in the VND and hence its value.
5. Foreign Exchange Reserves: The level of foreign exchange reserves held by the country can also influence the strength of the Vietnamese Dong.
How can changes in global economic conditions affect the Vietnamese Dong?
Changes in global economic conditions can affect the Vietnamese Dong (VND) in several ways, including:
1. Trade Balances: Vietnam is an export-heavy economy. If global conditions change leading to decreased demand for its products, the trade balance could shift, which might weaken the Dong.
2. Foreign Investment: International investors play a vital role in Vietnam’s economy. Global economic stability or instability can significantly impact their investment decisions, affecting the inflow of foreign capital.
3. Commodity Prices: Vietnam is a major exporter of agricultural products like rice, coffee, and pepper. Changes in global prices for these commodities can impact Vietnam’s economy and, by extension, the value of the Dong.
4. Interest Rate Changes: Global economic conditions like a change in U.S. Federal Reserve’s policy rates can impact the value of the Dong. For instance, when US interest rates rise, investors may move money out of emerging market economies like Vietnam in pursuit of higher yields.
5. Exchange Rate Volatility: In turbulent global economic times, investors often flock to “safe-haven” currencies, causing potentially volatile swings among other currencies, including the Dong.
6. Remittances: A substantial part of Vietnam’s income comes from remittances sent by Vietnamese working abroad. Global economic downturns could affect the employment and income of these workers, reducing the amount of money they send back home.
It’s important to note that currency valuation is influenced by a complex interplay of factors, and global economic conditions are just one piece of the puzzle. Predicting currency movements can be difficult, making it crucial to seek expert advice when dealing with currency-related financial decisions.
Iraq and the Revaluation of the Iraqi Dinar
The revaluation of the Iraqi Dinar involves multiple factors, many of which are interconnected. Here are some of the key influences:
1. Economic Stability: A key factor in the potential revaluation would be the economic stability of Iraq. This could be reliant on the country’s GDP, inflation rates, unemployment levels and the stability of other economic indicators.
2. Political Stability: The revaluation could also be affected by the political landscape within the country. Stability indicates a lesser risk for investors, which could lead to appreciation of the currency.
3. Global Economic Conditions: The state of the global economy also affects the likelihood of revaluation. As Iraq is a major exporter of oil, fluctuations in global oil prices can greatly influence the country’s economic health.
4. Fiscal and Monetary Policy: Decisions by the Central Bank of Iraq surrounding interest rates, money supply, and fiscal policy could impact whether or not the currency is revalued.
5. Foreign relations: Policies of foreign countries, especially those dealing with trade and investment, can affect the value of the Dinar.
6. Security Situation: In regions with conflict or instability, currency value can be negatively affected. Improvement in the security situation can positively influence the currency.
What role do global economic conditions, specifically fluctuations in oil prices, play in the likelihood of the Iraqi Dinar being revalued?
Global economic conditions, particularly fluctuations in oil prices, play a significant role in the valuation of the Iraqi Dinar. Here’s how:
1. Dependency on Oil: Iraq’s economy significantly depends on oil, with oil revenues accounting for more than 90% of the government’s income. Therefore, any fluctuation in global oil prices directly impacts Iraq’s fiscal health.
2. Export Revenues: An increase in oil prices can increase export revenues, improve the trade balance, and potentially strengthen the national currency, the dinar. Conversely, a slump in oil prices can have the opposite effect.
3. Economic Stability: Significant changes in oil prices can affect economic stability. When prices are high, the government may have more flexibility to invest in infrastructure, public services, or pay down debt, which could lead to an appreciation of the dinar. If oil prices drop, this could lead to economic instability, potentially causing the dinar to drop in value.
4. Market Confidence: Stable, high oil prices can increase confidence in Iraq’s economy, inviting foreign investment and potentially leading to a revaluation of the dinar.
5. Government Policies: The government’s response to oil price fluctuations, such as spending cuts or increased borrowing during low price periods, can impact the currency’s value.
It’s important to note predicting currency movements, especially for a currency like the Iraqi Dinar, can be very hard due to the unpredictability of these factors.
Zimbabwe
Zimbabwe is rich in natural resources. Some of these include:
1. Minerals: Zimbabwe has vast mineral resources. It’s one of the world’s largest producers of gold, platinum, and diamonds. The country also has significant reserves of coal, chromium ore, asbestos, nickel, copper, iron ore, vanadium and lithium.
2. Land: The country has fertile soils especially in the Northern and Eastern regions, suitable for agricultural purposes.
3. Wildlife: Zimbabwe possesses a wide variety of wildlife and has several national parks and preserves that help protect this natural resource. These wildlife resources contribute significantly to the tourism industry.
4. Forests: There are also extensive forest resources in Zimbabwe, especially in the Eastern Highlands.
5. Water: Zimbabwe has multiple rivers including the Zambezi River and Limpopo River, which have potential for irrigation and hydroelectric power.
In June 2019, the Reserve Bank of Zimbabwe reintroduced the Zimbabwean dollar (ZWL$), which replaced the multiple-currency system that had been in place since the country’s period of hyperinflation back in 2008. So, as of now, the official and primary currency in Zimbabwe is the Zimbabwean dollar, not a commodity-based currency.
Historically, Zimbabwe attempted to stabilize its economy by using a multi-currency system, including the US dollar, South African rand, Botswana pula, Pound Sterling, Australian dollar, Chinese yuan, Indian rupee, and Japanese yen.
However, the idea of introducing a commodity-based currency in Zimbabwe has been suggested by some, including the former Reserve Bank of Zimbabwe governor, Gideon Gono. He proposed it in 2008 during the peak of the hyperinflation crisis. The idea was to link the value of the currency issued to the country’s mineral wealth – gold and other precious minerals. This hasn’t been implemented, and the practicality and effectiveness of such a currency would be subject to intense scrutiny and debate before it could become a reality.
Zimbabwe is richly endowed with mineral resources such as diamonds, gold, coal, iron ore, and platinum, but turning those resources into a commodity-backed currency involves overcoming significant economic, logistical, and transparency-related challenges. It would require a reliable auditing system in place to confirm the physical existence of those resources and an efficient delivery system should anyone wish to convert their money into the commodity.
In the end, the most significant thing is economic stability, sensible fiscal and monetary policies, and political will to implement and manage such a system effectively. As of now, Zimbabwe has not adopted a commodity-based currency. The discussion of such a proposal is mostly academic and speculative.
What about the Quantum Financial System (QFS)?
The Quantum Financial System (QFS) is a speculative and theoretical future system proposed by some in the financial and technology communities. Its capabilities and potential benefits depend on the advancement and deployment of quantum computing, which is currently in its early stages. Below are some potential benefits of QFS according to its proponents:
1. Enhanced Security: The main selling point of QFS is the theoretical enablement of next-level security. Quantum cryptography could potentially create almost unbreakable codes, vastly increasing the security of transactions and reducing the risk of hacking through traditional methods.
2. Speed and Efficiency: It is claimed that QFS would greatly enhance the speed and efficiency of financial transactions. Since quantum computers can handle complex calculations much faster than classical computers, proponents believe that transaction and processing times would be considerably reduced.
3. Transparency: Some proponents argue that QFS would be more transparent than current systems, reducing fraud and corruption. Every transaction would reportedly be traceable due to the distributed ledger system.
4. Elimination of Central Banks: Some theories about QFS suggest it would eliminate the need for central banks and render fractional banking practices obsolete.
5. Decentralization: Similar to blockchain technology, some versions of QFS could be decentralized and could potentially reduce the power held by major financial institutions, offering broadened access to financial resources and diminishing control of central banks.
6. Global Financial Reset: Some proponents suggest that the implementation of QFS could reset the global economy and free it from current debts and liabilities, providing equal financial opportunities to every individual and eradicating poverty and inequality.
It’s important to remember that these benefits depend on many technological and societal uncertainties.