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May
26

Fragile euro and the carbon-based Tierra

Post By gaia1 in European Union

One of the many reasons that the euro is fragile is the fragility of the international monetary system. The latter system has no standard and is subject to wide currency manipulation and speculation and widely fluctuating exchange rates to mention its most important shortcomings. This external monetary pressure on the euro is not often considered in analyzing its weaknesses.

            Other reasons for the fragility that are more locally caused are the great disparity in the economies of its 16 members. Its southern tier of countries, particularly Greece, Spain, Portugal and Italy, have for various reasons not kept their fiscal houses in order and have generated high sovereign debt loads. Thus, on May 25, 2010 the euro hit an 8 1/2-year low against the yen and neared a 4-year low versus the dollar. During the month of May alone the euro lost more than 7 percent versus the dollar, the biggest monthly fall since January 2009. The euro's downside targets stood at the recent low of $1.2143 and at $1.2133, a 50 percent retracement of a rally from its all-time low around $0.8225 in October 2000 to its record peak of $1.6040 touched in July 2008.

            Note the enormous fluctuations of the euro—100% from October 2000 to July 2008 and 50% from October 2000 in May 2010. Think of the havoc these fluctuations inflict on local residents and business and international trade. The euro system being one of the world’s major currency areas has become so unstable, that markets i.e. investors and gamblers are hesitant to invest in those countries’ economies. They pull backed from their riskier assets, followed by citizens of those southern countries who also pulled back their assets out of their own banks and deposited them in German banks or invested them in US Treasuries. States Kenneth Broux, senior market economist at Lloyds TSB: "Fears are growing that a collapse in confidence could undo the positive growth impulses that are still present, with tensions in money markets resulting in dollar liquidity drying up."[1]

            Under the TFD system the euro would be carbon based and convertible with the other carbon-based national currencies in its first phase. In its second phase the euro would be replaced by the Tierra, the carbon-based single global currency. The monetary architecture in both phases would consist of fixed exchange rates within a monetary governance structure of the UN World Central Bank which by exercising its four main functions would provide monetary stability for the benefit of all. This stability is made possible on account of the equity and sustainability of its Articles of Agreement. Given that there will always economic changes locally, regionally and internationally, the Tierra monetary architecture’s exchange rates will fluctuate, but these fluctuations are kept within a short band around its monetary standard. Unlike the ECB, the World Central Bank has the political power to keep its members’ monetary and fiscal policies in check after having achieved a monetary union under the auspices of the United Nations.



[1]http://www.reuters.com/article/idUSLDE64O0OC20100525?loomia_ow=t0:s0:a49:g43:r5:c0.039735:b34310808:z0