Regardless of the history... This is serious shit. The fed will play this down as much as possible to prevent panic or a run on the banks. Currently some provision in the IMF bylaws requiring an 85% super majority vote preventing SDR to be used to back negotiable instruments and new issues. From what I read they have already done the legal maneuvering to circumvent this hurdle. This is going to happen this quarter... I'm guessing when we announce the lifting of our debt ceiling later this month.
As a currency trader ( and I don't know why anyone would not be), I noticed this too. Egypt tripped, the dollar rallied. The Yen is also ( hint, hint)
What If..... An SDR based instrument is created to compete head on with t-bills? They've already put up a reform focused website: http://www.imsreform.org/reserve.html with lots of new postings this past week. A few quotes from: http://www.imf.org/external/np/pp/eng/2011/010711.pdf Develop a new reserve asset: Issuance by the Fund (or related investment vehicle) of SDR-denominated securities in sufficient volume could offer a safe haven in the event of disorderly diversification out of the existing stock of assets, as well as offering an alternative mode of Fund borrowing at time of high potential demand for its resources. Reduce impact of exchange rate swings: The SDR unit of account could be used to price global trade, denominate financial assets, peg currencies, and keep accounts and official statistics. The SDRâs basket characteristic provide a less volatile unit of account and store of value than its components when measured in domestic currency terms, thereby helping cope with exchange rate volatility for both the official and private sectors (see Box 1). These benefits are all the greater as the use of the SDR in both goods and asset markets is developed. Such development would allow the SDR to serve as focal point for IMS evolution, a more efficient outcome than several segmented markets in various national currencies. Regarding official SDRs With their use limited to the official sector, official SDR holdings provide an imperfect reserve asset, as they cannot be used directly for market intervention or liquidity provision. There are tight legal and political constraints to expanding the use of the official SDR, such as the need for an amendment of the Articles to change the way SDRs are allocated or the need for an 85 percent majority of voting power to agree to an allocation of any size. 20. Private use of SDR. Allowing private sector holding (and trading) of official SDRs would enhance their reserve asset quality as central banks could use them directly to intervene or extend liquidity to the market, instead of having to go through the Fundâs voluntary market or designation mechanism to exchange their SDR holdings for useable currency, a transaction that can take several days to complete. It could also help spur development of a market in other SDR-denominated assets and contribute to the development of other reserve currencies. Private sector institutions could be interested in holding official SDR based on a calculation that the market may develop further and for the potential benefits of SDR as a source of liquidity. Allowing the private sector to use SDR holdings as collateral to obtain freely useable currencies at times of globalized liquidity squeeze or financial distress could increase the incentives for holding SDRs. This would require consent from key central banks to provide a market for private participants, or opening the Fundâs voluntary market to them, which may require capping the amounts of SDRs eligible for such transactions. Private holdings of SDRs could thus directly contribute to alleviating stress at times of crisis and would mimic the global provision of foreign currency swap lines. III. DEVELOPING NEW RESERVE ASSETS 21. A less constrained route. Official SDR allocations would clearly contribute to the objective of expanding the supply of safe reserve assets. However, given their limitations and the very high degree of political consensus needed to enhance their role, it is worth exploring whether there would be other ways of creating new reserve assets that could be denominated in SDRs. The focus in this section is on steps that could be taken by the Fund or a subset of its membership acting together. These include: i) Fund-issued SDR bonds; and ii) other SDR-denominated reserve-backed assets that could facilitate the diversification of reserve holdings and spur market development for other SDR securities. A. Fund-issued SDR Assets 22. SDR-denominated bonds... 23. New financial structure. B. Reserve-backed SDR Assets 25. Substitution account. 26. Alternatives. IV. MITIGATING EXCHANGE RATE VOLATILITY A. Pricing, Accounting, and Pegging 28. Foreign trade pricing. 29. Data reporting and accounting. 30. Pegging. AND FINALLY THE CHINESE CONNECTION 40. The RMB question. The recent review of the SDR valuation concluded that in spite of Chinaâs prominent share of global exports, the RMB should not be included in the SDR basket, as it did not meet the criteria to be determined a freely usable currency. It is an open question however whether this criterion should be retained as part of the SDR valuation method. Recent reforms that allow nonresidents, including central banks, to hold RMB-denominated deposits and the gradual development of RMB derivatives in Hong Kong could contribute, overtime, to resolving some of the technical difficulties in hedging RMB exposure. These could perhaps be supplemented by additional convertibility agreements between the PBC and other SDR designated holders. Such steps might be sufficient to preserve the SDRâs attractiveness with traditional reserve managers, particularly if explicitly part of a broader plan including a credible public commitment to internationalize use of the RMB and to liberalize capital flows.
For a thing to function as a reserve asset it must exist in the form of tradeable wealth. The SDR has a long way to go before it is that. Of course, if they intend to back it with gold that's another matter. If they want to back it with existing paper currencies then its use adds no value to world trade. China will revalue and float before the big currency adjustment takes place. They won't want to miss the chance to play on the world stage, and they can't do that if their currency won't stand on its own.
Interesting concept, build a currency, back it with gold so people round the world will trust it and work to obtain it and try to save it, once they are hooked on to it, stop backing it with gold, print and consume at will, default, start anew. You're a fucking genius man.
All they need is for OPEC oil contracts to settle using some form of an SDR backed scrip. Simple play that will force everyone to jump onboard.
Dear Pocketchange, "They" are nothing. When I think about this name SDR... I can only come to one conclusion. However before that I just want to tell you that the market and opec will be reunited. But before that (2X) some people will needs to answer what they did a few years ago at the Hadj... And as it said in Rome do as the Romans... They shouldn't have cross this line... Back to the SDR of the IMF... they too shouldn't have too... To be blunt : S.D.R = Satan Drawing Rights As it was said earlier IMF is based on nothing ( as their master )... However as some of you don't understand that I will give you a few clear example that in my mind confirm that they are to be placed at the same level as the Polit Buro In Moscwa... Why ? Argentina : How do you explain that in one of the major food power house of the world they were/are children unable to feed themselves to the point of brain underdevelopment ? Furthermore imposing the GMO biz... GRRRRRR Greece - Portugal : After a few months of hardship I didn't see a single Greek or Portuges or Irisk(LOL) Offical go to Jail... I mean you don't fuck like this a full country without corruption and conflict of interrest. Yet no one has been even afraid by some investigations. Taking responsabilities is too dangerous for them... They have commited so many crimes. Generally : They think(g) ( because they have Phd's and stuff like this ) that they can trade, I mean take place in the world market... Don't dream suckers. Your plans fails because your are stupids. And worst, you don't know it, because you didn't believe those who told it to you... SUCKERS Furthermore, and I come back to the event of the Hadj don't believe this kind of France... they are even bad in the Biz and worst than anything... they don't believe. And take that SS, the pyramids have fallen, AGAIN... the greatest symbol of your fucked mentality. they will pay soon... Regarding the services: I hope that for once those of the outside will work with those in the inside to make a full clean ( btw remember Titus). ( Titus Fall : I did make a pact with the devil, she dies I go free... <iframe title="YouTube video player" width="640" height="390" src="http://www.youtube.com/embed/5eAYjeERNuk?rel=0" frameborder="0" allowfullscreen></iframe> In case you missed it )
Any legitimate challenge to USD reserve status means a certain collapse in US debt markets, the dollar, followed promptly by monetization and a near hyper-inflationary (Great) depression. The IMF is chiefly a Western-led institution (US-Europe). That America and Europe telegraphed they intend to hasten the dollar's collapse with a replacement SDR, well, that speaks volumes. Of course, China - now, the world's second largest economy - won't object. Look at the article - create SDR as competition to US Treasury markets and denominate commodity prices in SDR's. That's akin to tearing out the guts of USD reserve status. The Anglo-Saxon alliance intends to kill the dollar. Anybody else see what's happening here?