Our season of holidays has passed and we look once again to the opportunities that await us in a new year. While it some-times feels as if we are careening toward a cliff to plunge head-long into the abyss of prophetic fulfillment of strategic trends, we have actually plodded along for decades. Why do we suddenly feel the intensity? Because we have, or are, awakening out of our normalcy bias.
Normalcy bias refers to the state of mind we enter when facing a disaster. It causes us to underestimate both the possibility of a disaster occurring and its potential effects. The result is failure to prepare personally. On a larger scale, it can lead a government to exclude its citizens in disaster preparedness planning.
In essence, normalcy bias is created by the assumption that because something has not occurred, it will never occur. As the intensity and convergence of many strategic trends is be-coming personal on many levels, the boundaries of our normalcy bias are being stretched, and in many cases, broken.
Without doubt, the worst day for Americans will be the day the dollar is vetoed as the world’s reserve currency. A 2010 International Monetary Fund (IMF) report, entitled “Reserve Accumulation and International Monetary Stability,” tackles some of the issues. The report asks the question, “What else is there?” and answers with:
The share of the U.S. dollar in global reserve assets far exceeds the share of the U.S. in the global economy. In large part, this reflects the dollar’s central role as “international cash”—acting across the world as a unit of account, and medium of exchange, for cross-border trade and financial transactions, debt securities, commodity pricing….
It doesn’t take long, however, for the report to provide possible options for the dollar due to “potentially serious” risks associated with its continued use. One option discussed often in 2010 has been the expansion of the Special Drawing Rights (SDRs). The SDR is an international reserve asset created by the IMF in 1969. Its value is based upon a basket of four key international currencies: the U.S. dollar, the euro, the yen, and the pound.
An important limitation to the use of the SDR is that it is not a currency. Eventually, it has to be converted into a national currency for purposes of foreign exchange. Thus, the idea of a sui generis global currency has been suggested—the bancor.
Keep in mind that sui generis indicates the currency is unique in its characteristics. But, based upon the following, its uniqueness is truly Biblical in proportion.
Economist John Maynard Keynes originally proposed the bancor in 1943 as part of an international clearing union. However, in 1944 at Bretton Woods, the American “White Plan” was accepted in which national currencies would retain fixed exchange rates against the dollar, and the dollar would be matched to gold. The International Monetary Fund and the World Bank were created to oversee the new international monetary system.
Even though the dollar came off the gold standard in 1971 under then U.S. President Richard Nixon, and by 1975 became a fully fiat currency, demand for the dollar remained strong. That changed following the 2008 global financial debacle and the IMF is essentially proposing a review of Keynes’s bancor to replace the dollar.
The bancor would be a global currency issued by a global central bank. It would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. It would be adopted by fiat as a common currency (much like the euro was) that would result in immediate wide-spread use and eliminate exchange rate volatility. Two caveats to the implementation of the bancor include:
1. The implementation of mechanisms for fiscal discipline and cooperation among member nations; and
2. The construction of governance arrangements that ensure accountability of the bancor-issuing institution while assuring its independence.
Serious discussion and planning are under way for a global fiat currency issued by a global central bank.
Regardless of our normalcy bias—that internal mechanism that shuts down our ability to deal with something we have never experienced—life in America will change the day the dollar is no longer the reserve currency. In his 2008 book, Wealth, War, and Wisdom, Barton Biggs gives several examples of how normalcy bias can lead to catastrophic decisions. When the Federal Reserve can no longer simply print more money to bail out private institutions and pay its debts, the cost of everything, especially oil, goes up.
Historically, over the last 100 years, this type of debt crisis has occurred in Germany, Russia, Austria, Poland, Argentina, Brazil, Chile, Poland, the Ukraine, Japan, and China. The U.S. is not immune from the results of its current fiscal policies.
Access to cheap oil has been America’s gift of owning the world’s reserve currency. When dollars are no longer required to purchase oil globally, the price in the U.S. increases exponentially. A quick glance at current fuel prices are indicative:
City/Country Average Cost/Gallon
Denver, United States $2.72
Oslo, Norway $7.41
Berlin, Germany $6.82
London, England $6.60
Rome, Italy $6.40
Paris, France $6.04
Toronto, Canada $3.81
While we are feeling the pinch of increased fuel costs now, what will happen if the price doubles or triples in a very short period of time—everything we do will suddenly become much more expensive. Proverbs 22:3 warns: “A prudent [man] foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” As we enter 2011, we are being given a wake-up call—one of Biblical proportions that may well reverberate around the world.
Our first hint may just be the botched printing of the new, technically sophisticated $100 bill. With 1.1 billion “quarantined” notes—printed at a cost to tax payers of $120 million—sitting in storage awaiting their fate, Treasury Secretary Timothy Geitner will have to wait to have a bill with his name on it.