The term ‘safe fiat currency’ is as intellectually disingenuous as terms like ‘fair tax’ or ‘government innovation’ but, as we’ve been exploring recently why modern central banking is completely dysfunctional, it does beg the question– is any currency ‘safe’? Let’s look at the numbers for some data-driven analysis. Words: 575
So writes Simon Black (sovereignman.com) in edited excerpts from his original article* entitled Here’s some hard data on the ‘safest’ fiat currency.
[The following article is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Black goes on to say in further edited, and paraphrased in some instances) excerpts:
What Makes a ‘Safe’ Currency?
A nation’s currency is issued by its central bank and a central bank is structured like any other bank– it has assets and liabilities. On the asset side of the balance sheet are things like government bonds and gold….Its liabilities include the nation’s money supply, technically known as central bank ‘notes’. Look at those US dollars, Canadian dollars, British pounds, etc. in your wallet. You’ll see they’re actually ‘notes’ issued by the central bank, i.e. liabilities.
1. A Central Bank’s capital ratio: Just like any other bank, healthy central banks hold portfolios of high quality assets and those assets should exceed liabilities by a substantial margin. This is known as a bank’s capital ratio, and it represents a bank’s margin of safety in the event of a crisis. Consequently, ‘safe’ currencies are issued by well-capitalized central banks with a high capital ratio.
2. A government’s balance sheet: It’s also critical to check the government’s balance sheet [because] central banks that get in trouble will require a government (i.e. taxpayer) bailout and heavily indebted governments won’t have the ability to do this.
We all have read analysis after analysis that just doesn’t make the cut but those of Dr. Nu Yu do. If you only have the money to subscribe to one investment newsletter then Nu Yu’s MarketSectorTA report is the one! Check it out.
The U.S. Dollar[The two points above] automatically eliminate the U.S. dollar because the Federal Reserve’s capital ratio is a laughable 1.53% and, since the U.S. government’s debt is nearly $17 trillion, there’s no chance Uncle Sam can bail out the Fed.
The British Pound, Euro, Japanese Yen and Canadian Dollar
This reasoning also eliminates the British pound, euro, and yen. Even the Canadian dollar is not in good shape given the country’s debt level and the razor-thin capital (0.53%) at the Bank of Canada.
The Singapore Dollar
Singapore is an interesting case. In its just-published annual report, the Monetary Authority of Singapore announced that it lost $8 billion last year trying to keep its currency depressed against the US dollar. This is astounding… and suggests more than anything that this absurd dollar-centric fiat system is on the way out.
Singapore’s central bank balance sheet is still in much better condition than the West with a 7.2% capital ratio and the government there has zero net debt, so the Singapore dollar is far safer than the dollar or euro.
“Follow the munKNEE” and get every article posted:
https://twitter.com/munknee or @munknee or #munknee or
https://www.facebook.com/lorimer.wilson (Click on Timeline) or
our FREE newsletter or
an RSS feed
Don’t forget to “tweet“ or “like“ those articles you wish to share with others
The Safest Major Currency Is the Norwegian krone
Looking at the numbers, the answer is simple. It’s the Norwegian krone.
- Norway’s central bank, which issues the krone, has among the highest capital ratios of any central bank in the world at 23.3%.
- The Norwegian government has zero net debt, i.e. its total financial assets far exceed debt.
- Norway isn’t part of some supranational body like the European Union, which means that Norway cannot be stuck with some other nation’s liabilities (just as we see Luxembourg stuck with a share of Greece’s bailout)
- The krone is not pegged to any other currency, so it can’t be dragged down with a sinking ship.
In a paper currency system controlled by a tiny banking elite, the Norwegian krone is as ‘low risk’ as it gets. (Bear in mind, however, that this analysis does not suggest that the Norwegian krone is ideal for speculation or investment gain… but rather the fiat currency with the sturdiest fundamentals in the event of a global crisis.)
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.sovereignman.com/finance/heres-some-hard-data-on-the-safest-fiat-currency-12460/ (© Copyright 2012 Sovereign Man, All rights reserved)
Today, more than 60% of all foreign currency reserves in the world are in U.S. dollars – but there are big changes on the horizon…Some of the biggest economies on earth have been making agreements with each other to move away from using the U.S. dollar in international trade…[and this shift] is going to have massive implications for the U.S. economy. [Let me explain what is underway.] Words: 1583 Read More »
The least imperfect monetary system by which civilized nations can conduct their business is the classical gold standard – a system in which every major nation defines its currency as a weight unit of gold. [Let me explain.] Words: 890 Read More »
Paper money was first used by the Chinese during the Tang Dynasty in 806 AD–500 years before Europe began printing money in the 17th century. It would be another 100 years before America started circulating a national paper currency…. How familiar are you with banknotes from around the world? Read More »