In Praise Of The Whistleblowers

Whistleblowers run a two-pronged battle - on the one hand they are lauded for their honesty in exposing wrongdoing in the fields in which they are involved - on the other, they are hated and despised for their actions by those who want to cover misdeeds, or preserve the status quo.

The world of finance has a long history of such characters - some, like Michael Lewis, the ex-bond salesman from Wall Street, who worked for Salomon Brothers in the 1980s and exposed the work practices and ethos which subsumed banks and trading houses - have made their fortunes by such whistleblowing.

Others, like Hervé Falciani, an employee of HSBC’s Swiss private bank, who opened the door onto the bank’s money laundering techniques, and gave details of the hidden accounts of 130,000 wealthy individuals to the tax authorities, was jailed for 5 years for his activities.

The latest in this line up is a former World Bank staffer, economist and analyst of geopolitical events and outcomes - Peter Koenig.

His basic argument and expose is that the whole financial system worldwide is rigged against the majority of the population who are forced into using it - not so much against their will - but because they don’t even notice.

That is quite a contention to put forward - but he has plenty of evidence to back up his assertions.

His most recent pronouncement has had many sitting up and taking notice.

It is well known that China and Russia are trying to release themselves from the stranglehold of a US dollar, currency denominated, world financing system - overseen by the World Bank, the IMF and the US Federal Reserve, amongst others. Koenig is arguing that Sberbank - the largest of the Russian banks - is to increase its gold supply to China by 10-15 tons during 2018.

The thinking behind this is strategic. Both the Chinese yuan (also known as the renminbi - which was created in 1949 when the People’s Republic of China came into being) and the Russian rouble, are currencies which are actually backed up by gold. The dollar was taken from the gold standard in 1971, when President Nixon decided to unpeg the greenback from its relationship with gold. This action underpins the crisis now looming in world finance.

Russia has been facilitating China’s plans by selling oil, and entering into joint mining ventures with Beijing. China is known to have prepared a crude oil futures contract with Russia - this is gold convertible and yuan denominated - and neatly circumvents any need to use US dollar based benchmarks like West Texas or Brent crude pricing.

This has implications, not just for the dollar - by using this method, both Russia and China get round any sanctions that the US and UN, and other supranational bodies are trying to impose - making any such measures completely ineffective.

Taking the method up a notch, China has also said that it will honour the yuan on the Hong Kong, and Shanghai, stock exchanges, by allowing it to be fully convertible into gold. This makes it an attractive proposition for those countries already under the yoke of sanctions and restrictions, such as Iran, and Libya, to trade their oil.

All of this leaves the US in a precarious situation. It would seem that anything which is exposed to, or based on, the US dollar for it’s value or it’s benchmark price will be exposed to these global currency storms looking to destroy them. By not being gold backed, and with cryptocurrencies beginning to snap at its heels, the US dollar looks beleaguered and vulnerable.

Koenig has said that this realigning of status, as China becomes more of a force on the world economic stage, will result in the yuan becoming the de facto new reserve currency.

This chart shows the history of the most powerful currencies and their influence through the centuries. This chart is now skewed because of the decoupling of gold from the dollar -  and the IMF being formed to oversee the system of monetary policy.

Indeed, in a counter argument to this “one currency takes all” argument, Washington’s Blog thinks that China and Russia do not want their currencies as the reserve currency - but do want them to be part of a basket made up of a mixture of currencies and commodities - the jury is out about which of the options is taken up.

In the meantime, as currencies flounder, and governments and agencies argue between themselves as to how to solve the problem, commodities (gold and silver in particular) seem to be slowly moving upwards. As the uncertainty increases, and countries, and vested interests, vie for power and influence within the financial system - whistleblowers like Koenig, who allow an insight into the workings of the labyrinth, help to shape our investment decisions by cutting through the normal channels of information, and allowing us to see what is really happening behind the curtains.

Keeping an open mind to all sources of news and views will help to preserve your wealth - whistleblowing can be useful.

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