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regularly computed and published for the benefit of traders.
Bernard Lietaer has proposed a commodity-based currency that
he calls “New Currency,” which could be initiated unilaterally by a
private central bank without the need for new international agree-
ments. The currency would be issued by the bank and backed by a
basket of from three to a dozen different commodities for which there
are existing international commodity markets. For example, 100 New
Currency could be worth 0.05 ounces of gold, plus 3 ounces of silver,
plus 15 pounds of copper, plus 1 barrel of oil, plus 5 pounds of wool.
Since international commodity exchanges already exist for those re-
sources, the New Currency would be automatically convertible to other
national currencies.4 Lietaer has also proposed an exchange system
based on a basket-of-commodities standard that could be used pri-
vately by merchants without resorting to banks. Called the Trade
Reference Currency (TRC), it involves the actual acquisition of com-
modities by an intermediary organization. The details are found on
the TRC website at www.terratrc.org.

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Valuing Currencies Against the Consumer Price Index

Money reform advocate Frederick Mann, author of The Economic
Rape of America, had another novel idea. In a 1998 article, he
suggested that a private unit of exchange could be valued against either
a designated basket of commodities or the Commodity Research Bureau
Index (CRB) or the Consumer Price Index (CPI). Using standardized
price indices would make the unit particularly easy to calculate, since
the figures for those indices are regularly reported around the world.
Mann called his currency unit the “Riegel,” after E. C. Riegel, who
wrote on the subject in the first half of the twentieth century. For the
“basket” option, Mann proposed using cattle, cocoa, coffee, copper,
corn, cotton, heating oil, hogs, lumber, natural gas, crude oil, orange
juice, palladium, rough rice, silver, soybeans, soybean meal, soybean
oil, sugar, unleaded gas, and wheat, in proportions that worked out
to about $1 million in American money. This figure would be divided
by 1 million to get 1 Riegel, making the Riegel worth about $1 in Ameri-
can money.
Another option would be to use the Commodity Research Bureau
Index, which includes gold along with other commodities. But Mann
noted that the CRB would give an unrealistic picture of typical prices,
because individuals don™t buy those commodities on a daily basis. A
better alternative, he said, was the Consumer Price Index, which tal-
lies the prices of things routinely bought by a typical family. In the
United States, CPI figures are prepared monthly by the U.S. Bureau of
Labor Statistics. Prices used to calculate the index are collected in 87
urban areas throughout the country and include price data from ap-
proximately 23,000 retail and service establishments, and data on rents
from about 50,000 landlords and tenants.
When Mann was writing in 1998, the CPI was about $160. He
suggested designating 1 Riegel as the CPI divided by 160, which would
have again made it about $1 in 1998 prices.5 Converting the cost of
one Riegel™s worth of goods in American dollars to the cost of those
goods in other currencies would then be a simple mathematical
proposition. The CPI™s “core rate,” which is used to track inflation,
currently excludes goods with high price volatility, including food,
energy, and the costs of owning rather than renting a home.6 But to
be a fair representation of the consumer value of a currency at any
particular time, those essential costs would need to be factored in as

Chapter 46 - Building a Bridge

A New Bretton Woods?

These proposals involve private international currency exchanges,
but the same sort of reference unit could be used to stabilize exchange
rates among official national currencies. Several innovators have
proposed solutions to the exchange rate problem along these lines.
Besides Michael Rowbotham in England, they include Lyndon
LaRouche in the United States and Dr. Mahathir Mohamad in
Malaysia, two political figures who are controversial in the West but
are influential internationally and have some interesting ideas.
LaRouche shares the label “perennial candidate” with Jacob Coxey,
having run for U.S. President eight times. He also shares a number of
ideas with Coxey, including the proposal to make cheap national credit
available for putting the unemployed to work developing national in-
frastructure. LaRouche has launched an appeal for a new Bretton
Woods Conference to reorganize the world™s financial system, a plan
he says is endorsed by many international leaders. It would call for:
1. A new system of fixed exchange rates,
2. A treaty between governments to ban speculation in derivatives,
3. The cancellation or reorganization of international debt, and
4. The issuance of “credit” by national governments in sufficient quan-
tity to bring their economies up to full employment, to be used for
technical innovation and to develop critical infrastructure.7
La Rouche™s proposed system of exchange rates would be based
on an international unit of account pegged against the price of an
agreed-upon basket of hard commodities. With such a system, he
says, it would be “the currencies, not the commodities, [which are]
given implicitly adjusted values, as based upon the basket of com-
modities used to define the unit.”8
Dr. Mahathir is the outspoken Malaysian prime minister credited
with sidestepping the “Asian crisis” that brought down the economies
of his country™s neighbors. (See Chapter 26.) The Middle Eastern
news outlet Al Jazeera describes him as a visionary in the Islamic
world, who has proven to be ahead of his time.9 As noted earlier,
Islamic movements for monetary reform are of particular interest today
because oil-rich Islamic countries are actively seeking alternatives for
maintaining their currency reserves, and they may be the first to break
away from the global bankers™ private money scheme. In international
conferences and forums, Islamic scholars have been vigorously debating

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monetary alternatives.
In 2002, Dr. Mahathir hosted a two-day seminar called “The Gold
Dinar in Multilateral Trade,” in which he expounded on the Gold
Dinar as an alternative to the U.S. dollar for clearing trade balances.
Islamic proposals for monetary reform have generally involved a return
to gold as the only “sound” currency, but Dr. Mahathir stressed that
he was not advocating a return to the “gold standard,” in which paper
money could be exchanged for its equivalent in gold on demand.
Rather, he was proposing a system in which only trade deficits would
be settled in gold. A British website called “Tax Free Gold” explains
the proposed Gold Dinar system like this:
It is not intended that there should be an actual gold dinar coin,
or that it should be used in everyday transactions; the gold dinar
would be an international unit of account for international settlements
between national banks. If for example the balance of trade
between Malaysia and Iran during one settlement period,
probably three months, was such that Iran had made purchases
of 100 million Malaysian Ringgits, and sales of 90 million Ryals,
the difference in the value of these two amounts would be paid
in gold dinars. . . . From the reports of the Malaysian conferences,
we deduce that the gold dinar would be one ounce of gold or its
equivalent value.10
At the 2002 seminar, Dr. Mahathir conceded that gold™s market
value is an unsound basis for valuing the national currency or the
prices of national goods, because the value of gold is quite volatile and
is subject to manipulation by speculators just as the U.S. dollar is. He
said he was thinking instead along the lines of a basket-of-commodi-
ties standard for fixing the Gold Dinar™s value. Pegging the Dinar to
the value of an entire basket of commodities would make it more stable
than if it were just tied to the whims of the gold market. The Gold
Dinar has been called a direct challenge to the IMF, which forbids
gold-based currencies; but that charge might be circumvented if the
Dinar were actually valued against a basket of commodities, as Dr.
Mahathir has proposed. It would then not be a gold “currency” but
would be merely an international unit of account, a standard for mea-
suring value.

Chapter 46 - Building a Bridge

The Urgent Need for Change

Other Islamic scholars have been debating how to escape the debt
trap of the global bankers. Tarek El Diwany is a British expert in
Islamic finance and the author of The Problem with Interest (2003).
In a presentation at Cambridge University in 2002, he quoted a 1997
United Nations Human Development Report underscoring the mas-
sive death tolls from the debt burden to the international bankers.
The report stated:
Relieved of their annual debt repayments, the severely indebted
countries could use the funds for investments that in Africa alone
would save the lives of about 21 million children by 2000 and
provide 90 million girls and women with access to basic
El Diwany commented, “The UNDP does not say that the bankers
are killing the children, it says that the debt is. But who is creating the
debt? The bankers are of course. And they are creating the debt by
lending money that they have manufactured out of nothing. In return the
developing world pays the developed world USD 700 million per day
net in debt repayments.”12 He concluded his Cambridge presentation:
But there is hope. The developing nations should not think that
they are powerless in the face of their oppressors. Their best
weapon now is the very scale of the debt crisis itself. A
coordinated and simultaneous large scale default on international
debt obligations could quite easily damage the Western monetary
system, and the West knows it. There might be a war of course,
or the threat of it, accompanied perhaps by lectures on financial
morality from Washington, but would it matter when there is so
little left to lose? In due course, every oppressed people comes
to know that it is better to die with dignity than to live in slavery.
Lenders everywhere should remember that lesson well.
We the people of the West can sit back and wait for the revolt, or
we can be proactive and work to solve the problem at its source. We
can start by designing legislation that would disempower the private
international banking spider and empower the people worldwide. To
be effective, this legislation would need to be negotiated internationally,
and it would need to include an agreement for pegging or stabilizing
national currencies on global markets.

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A Proposal for an International Currency Yardstick
That Is Not a Currency

That brings us back to the question of how best to stabilize national
currencies. The simplest and most comprehensive measure for
calibrating an international currency yardstick seems to be the
Consumer Price Index proposed by Mann, modified to reflect the real
daily expenditures of consumers. To show how such a system might
work, here is a hypothetical example. Assume that one International
Currency Unit (ICU) equals the Consumer Price Index or some modified
version of it, multiplied by some agreed-upon fraction:
On January 1 of our hypothetical year, a computer sampling of all
national markets indicates that the value of one ICU in the United
States is one dollar. The same goods that one dollar would purchase
in the United States can be purchased in Mexico for 10 Mexican pesos
and in England for half a British pound. These are the actual prices of
the selected goods in each country™s currency within its own borders,
as determined by supply and demand. When you cross the Mexican
border, you can trade a dollar bill for 10 pesos or a British pound for
20 pesos. On either side of the border, one ICU worth of goods can be
bought with those sums of money in their respective denominations.
Carlos, who has a business in Mexico, buys 10,000 ICUs worth of
goods from Sam, who has a business in the United States. Carlos pays
for the goods with 100,000 Mexican pesos. Sam takes the pesos to his
local branch of the now-federalized Federal Reserve and exchanges
them at the prevailing exchange rate for 10,000 U.S. dollars. The Fed
sells the pesos at the prevailing rate to other people interested in con-
ducting trade with Mexico. When the Fed accumulates excess pesos
(or a positive trade balance), they are sold to the Mexican government
for U.S. dollars at the prevailing exchange rate. If the Mexican gov-
ernment runs out of U.S. dollars, the U.S. government can either keep
the excess pesos in reserve or it can buy anything it wants that Mexico
has for sale, including but not limited to gold and other commodities.
The following year, Mexico has an election and a change of
governments. The new government decides to fund many new social
programs with newly-printed currency, expanding the supply of
Mexican pesos by 10 percent. Under the classical quantity theory of
money, this increase in demand (money) will inflate prices, pushing

Chapter 46 - Building a Bridge

the price of one ICU in Mexico to around 11 Mexican pesos. That is
the conventional theory, but Keynes maintained that if the new pesos
were used to produce new goods and services, supply would increase
along with demand, leaving prices unaffected. (See Chapter 16.)
Whichever theory proves to be correct, the point here is that the value
of the peso would be determined by the actual price on the Mexican
market of the goods in the modified Consumer Price Index, not by the
quantity of Mexican currency traded on international currency markets
by speculators.
Currencies would no longer be traded as commodities fetching
what the market would bear, and they would no longer be vulnerable
to speculative attack. They would just be coupons for units of value
recognized globally, units stable enough that commercial traders could
“bank” on them. If labor and materials were cheaper in one country
than another, it would be because they were more plentiful or accessible
there, not because the country™s currency had been devalued by
speculators. The national currency would become what it should have
been all along “ a contract or promise to return value in goods or services of
a certain worth, as measured against a universally recognized yardstick for
determining value.

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