Mohi-Al-Deen Technologies

Dear brothers and sisters,                 March 7, 2010;

Assalaamu Alaikum Wa Rahmathullahi Wa Bharakhathuhu.

http://abcnews.go.com/Business/wireStory?id=9958995

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February 26, 2010

He said having other alternatives to the dollar "would limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country."

Strauss-Kahn, a former finance minister of France, said that during the recent global financial crisis, the dollar "played its role as a safe haven" asset, and the current international monetary system demonstrated resilience.

"The challenge ahead is to find ways to limit the tension arising from the high demand for precautionary reserves on the one hand and the narrow supply of reserves on the other," he said.

Several countries, including China and Russia, have called for an alternative to the dollar as a reserve currency and have suggested using the IMF's internal accounting unit.

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Inshah Allah, we hope to show that

1. IMF by its structure is undemocratic even if the decisions are by majority voting.

2. Under IMF reserve currency the influence of USA would be replaced by that of the trio of EU, USA, and Japan. Accordingly the relief that Russia and China seek would not materialize.

3. Gold accounting without gold backing would be democratic and remove the dependence on the International finance system on the decisions of one or more dominant countries making every country responsible for its stature..

Irrespective of the name by which the new reserve currency would be called the control of that currency would rest with the Board of Governors of the IMF. The IMF Board has one member from each of the participating 186 countries. But some of the members are more equal than others.

If we indeed are to have a world government with one person one vote, the whole population of the world would decide on the issues. What would be situation under the IMF?

The European Union has 27 member countries. Each of these countries have one Governor in the IMF Board. With the integration of the EU it is expected that the EU would be represented just by one Governor in IMF exercising the sum total of the powers of the current 27 Governors by a single vote. The weights of the vote of the different 186 Governors of IMF are given at http://www.imf.org/external/np/sec/memdir/members.htm 

We extract the weights and calculate the weight of the future single EU Governor of IMF below.

We prepare a table indicating the total cumulative votes starting from the highest vote down in the table below.

The Governors of EU and USA among themselves have 48.83% of the votes. Thus these two members virtually control the IMF, as it would require the remaining 158 Governors to be united to overcome the combined 48.83% vote of EU and USA alone. The shortfall of 1.17% could be made up by the vote of any one of the 12 countries from Japan to Venezuela in the table above. As the EU, USA, and Japan have very similar economic policies, chances are this trio would control the new reserve currency under IMF whether the currency is called SDR or by any other name.

How democratic is that? For uniformity of discussion, we take all population figures from http://www.prb.org/pdf09/09wpds_eng.pdf 

World: 6,810 millions

Europe   499.8 millions as per table below.

USA:     306.8 millions

Japan:   127.6 millions

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The population of Europe is calculated in the table below using the values given in http://www.prb.org/pdf09/09wpds_eng.pdf

Out of a total population of 6,810 millions just 934.2 millions control the IMF and thus the new reserve currency when that currency would be man-made. A mere 13.72% of the population controls the reserve currency and thus the rest of mankind at 5875.8 shall be influenced by currencies of just 3 political entities, instead of the 50% or more required by democracy.

What were the currencies of Islam: Dinar and Dirham. A Dinar is a gold coin and Dirham is a silver coin. What was the currency of world trade before the US Dollar became the reserve currency? Gold.

Should we revert to the 'Gold Standard?' Yes. Would that preserve democracy? Yes. How?

Who sets the price of gold? Is there any organization that declares the price of gold? No. The price of gold with respect to any currency is fixed by the market. Is the market democratic? As the basic economic principle of supply and demand applies to gold, the gold market cannot be manipulated and thus is democratic.

If any country simply prints paper currency without the support in terms of production, the prices of commodities and gold too would increase. If the balance of payments are recorded in equivalent units of gold, the increase in price of gold for a country that simply prints extra paper currencies would force that country to pay more in its currency for any service or produce imported earlier. Since the wages are not linked to the money supply, a currency that gets devalued causes more work to be performed by the people of that country.

Changing the reserve to gold without the requirement to back a currency with gold stored in central bank vaults is similar to having the paper currency as a reserve currency, whether it is USD or SDR or whatever.

We demonstrate this by calculating the conversion between GBP and USD; and between EUR and USD through the gold rates. We then compare them with the directly quoted exchange rates.

http://www.kitco.com/

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At 2:44 pm EST March 7, 2010;

One GBP = 1135.00 / 755.01 = 1.503 USD

One EUR = 1135.00 / 834.99 = 1.359 USD

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http://www.x-rates.com/

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At 2:49 pm EST March 7, 2010;

One GBP = 1.50493 USD

One EUR = 1.35819 USD

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Through gold, one GBP is 1.503 USD whereas the direct quote is 1.50493 USD. The difference is just 0.00193 USD, a negligible one. Similarly through gold, one EUR is 1.359 USD whereas the direct quote is 1.35819 USD, with a difference of - 0.00081 USD a difference smaller than the difference for the GBP and hence is again negligible.

In http://deentech.com/Gold_Standard_without_gold_backing.aspx we recommended a switch away from USD over a period of ten years. Quoting we have:

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It is our expectation that once we move to the 'Gold Standard' without gold backing, the central banks could slowly sell their gold to control the price of gold around decent limits. This would take time. We cannot switch to the 'Gold Standard' overnight. The switch must be gradual. We propose the following:

1. We make a basket of USD and Gold to be the reserve currency. At the time of switching, we assign 99% weight to USD and 1% weight to gold.

2. In the next year the weights become 90% for USD and 10% for gold.

3. The year after it becomes 80% for USD and the weight of gold is 20%.

4. By increasing the weight of gold in the basket by 10% every year and decreasing the weight of USD by 10% every year, we reach the 'Gold Standard' in about ten years.

Such a decade long switch to the 'Gold Standard' would allow all currencies to become reserve currencies as gold is traded in all currencies. Then the market forces would takeover. If any country prints more of its currency to absorb its debt, it would make gold costlier in that currency.

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Let us quote from the IMF now.

http://abcnews.go.com/Business/wireStory?id=9958995

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Dominique Strauss-Kahn, the head of the International Monetary Fund, suggested Friday the organization might one day be called on to provide countries with a global reserve currency that would serve as an alternative to the U.S. dollar.

"That day has not yet come, but I think it is intellectually healthy to explore these kinds of ideas now," he said in a speech on the future mandate of the 186-nation Washington-based lending organization.

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By shifting to -- 'gold standard without gold backing' -- we make every currency a reserve currency. Alternately we change the psychological attitude towards the man-made currencies vis a vis God-made gold. Such a shift preserves democracy by avoiding another blunder like the 'Security Council.'

Kindly forward to all 'one person one vote' lovers you know so that they work to bring in 'Gold Standard without Gold Backing.'

Allah Subhana Wa Taala knows best.

Your brother,

Mohideen Ibramsha

http://www.google.com/profiles/MohideenIbramshaPhD

Was Salaam