... In January 2010, the IMF issued another paper really speculating on the rise of the SDR as world money or a global currency. It was really a blueprint for the permanent establishment of the SDR. In other words, not a special, temporary SDR issue in case of emergency — but making the SDR a permanent global reserve currency.
But there’s a problem. In order to be a global reserve currency, the IMF can’t just print money to hand out. To create a reserve currency it needs to create an SDR-denominated bond market.
The reason the dollar is the world’s leading reserve currency is because there’s a very large liquid dollar-denominated bond market. Investors can go buy 30-day 10-year, 30-year Treasury notes, etc. The point is, there’s a deep, liquid dollar-denominated bond market to invest in that creates a lock-in effect. There is currently no equivalent bond market in SDRs. It will need to create one before SDRs can be considered a global reserve currency.
Well, last July, the IMF published a technical paper introducing the concept of a private SDR market…
In the IMF’s vision, private companies and corporations can issue bonds denominated in SDRs. Who are the logical issuers of the bonds?
Probably multinational or multilateral organizations like the Asian Development Bank and maybe big corporations like IBM and General Electric.
Who would buy these SDR-denominated bonds? Mostly sovereign wealth funds. China will be substantial buyers. The point is, these issues are coming.
Now the deployment of the SDR is coming closer to fruition…
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Yesterday I said September 4, 2016 could well go down as the day the dollar died. Why did I pick that date instead of September 30, the official date when the yuan is included in the IMF’s basket of currencies?
Because September 4 is when the leaders of the world’s larger economies will gather in Hangzhou, China for the G20 annual summit. This will be China’s coming-out party. This is China saying, “We are an equal partner, maybe more than the equal partner of the United States of America and Europe. They will no longer dictate the world’s financial system.”
The symbolism and the visuals at the upcoming meeting will be spectacular.
The IMF is essentially told what to do by the G20. If you think of the IMF as the central bank of the world, think of the G20 as the Board of Directors of the central bank of the world. It’s the committee that runs the world. This is not a conspiracy theory. It’s a fact.
And it’s important to realize that one G20 memo calls for “expanding the role of the IMF’s SDR (Special Drawing Rights).”
The pace is really picking up. The SDR bond issues I mentioned above are probably going to happen within the next couple of weeks. Between now and Labor Day we’ll see announcements about multibillion SDR bond issuance coming from the Asian Development Bank, some major Chinese commercial banks, the Asian Infrastructure Investment Bank, etc.
The point is, so these issues are coming. And over time, the SDR market will grow. It will not compete with the dollar-denominated bond market anytime soon, but the groundwork is being laid. Every time an institution invests in SDRs, they’ll be indirectly supporting the yuan. And it’ll help move the world that much further away from the dollar. This will have vast implications for anyone who holds their wealth in dollars.
The mechanics are too far along, the piecemeal social engineering was too well thought out, the ratchet is locked in place. It won’t be reversed. The next time there is a financial crisis, which I expect sooner than later, it’s not going to be the Fed that bails us out. It’s going to the IMF and the SDRs.
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