Yuan and SDR

JulieW · Nov 23, 2015

We live in interesting times unfortunately.

WASHINGTON -- The International Monetary Fund's proposed inclusion of China's yuan in its foreign exchange basket would put the Chinese currency on a par with other international currencies.

Beijing has been working hard to internationalize its currency in a bid to reduce the country's dependence on the U.S. dollar. The yuan's inclusion in the basket would alter the race for monetary hegemony among the world's major economies.

In a report released on Friday, the IMF said the yuan has met the criteria for joining the Special Drawing Rights basket, which consists of the U.S. dollar, Japanese yen, British pound and euro. The IMF proposed the inclusion of the Chinese currency to about 190 member countries. It is set to finalize its decision at an executive board meeting on Nov. 30.

A number of countries, including the U.S., are likely to approve the recommendation.

Special Drawing Rights is the term used to describe the IMF's reserve currency assets, which the organization distributes to member countries to head off currency crises. If a member nation finds itself in such a crisis, it can sell part of its rights to other IMF members in exchange for those reserve currencies.

If the yuan is indeed added to the basket, member nations would likely increase their yuan reserves. Analysts estimate that 10% of foreign currency reserves, or an equivalent of about $1 trillion, would be held in the Chinese currency.

One reason China is rushing to internationalize the yuan is so it can wean itself off the dollar, an IMF official said. China currently holds approximately $3.5 trillion in foreign currency reserves, mostly U.S. dollars.

The country faced huge losses as the value of the dollar plummeted in the wake of the 2008 global financial crisis. This prompted China to hedge against any further negative impact from the U.S. economy and to increase its efforts to internationalize the yuan.

There is also a matter of saving face. China will play host to leaders of the Group of 20 advanced and emerging nations next year, and President Xi Jinping and his administration want the yuan to be a Special Drawing Rights currency before then.

China has intended to turn the yuan -- now effectively pegged to the dollar -- into a widely traded and freely usable currency by 2020. To switch to a floating exchange system, Beijing will need to further liberalize capital transactions going forward.

http://asia.nikkei.com/Politics-Eco...-about-to-become-less-dependent-on-the-dollar
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Skyrocket · Nov 23, 2015

Thanks!

I got a 1oz silver coin bet with SilverPete that the Chinese Yuan will replace the USD as the world's trading currency by 2020.

SP, when I win please send me a Libertad

SpacePete · Nov 24, 2015

Skyrocket said:

Thanks!

I got a 1oz silver coin bet with SilverPete that the Chinese Yuan will replace the USD as the world's trading currency by 2020.

SP, when I win please send me a Libertad
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You are still dreaming hehehe

This is just another step towards SDRs as the real global reserve currency. Not the Yuan, or the USD, or Zombucks. but SDRs!

So....

(a) Economic growth is stagnating, money printing isn't helping, and something else needs to be done, apparently, because our entire economic system is built on the idea of infinite, never ending growth.

(b) SDRs are that "something else", they are the path to reigniting inflation of world currencies in a way that most people will not understand or even notice.

Quoting Jim Rickards below, and no matter what you think of him, the following is worth understanding:

Special Drawing Rights

The SDR sounds geeky it stands for Special Drawing Right. The name is by design. Global financial leaders pick strange names for what they're doing so people don't understand what it is.

Luckily, the SDR isn't complicated. It's very simple. The Fed has a printing press and can print dollars. The European Central Bank has a printing press and can print Euros. The IMF, the International Monetary Fund, has a printing press and can print Special Drawing Rights. The SDR is simply world money. They didn't want to call it world money because that sounds a little scary, but that's what it is.

They're not new; in fact, they've been around since 1969. The IMF can print them and in the next liquidity crisis, they will do so. In 2009, they printed hundreds of billions of dollars equivalent of SDRs. Not very many people noticed.

They'll be involved in a bigger way when the next crisis hits and we could see the SDR become the new global reserve currency. That doesn't mean the dollar goes away. It just means the dollar would be a local currency like a Mexican Peso or a Turkish Lira. We will have them for getting a taxicab or going out for drinks, but it won't be used for the big things.

When I say the big things, I mean the price of oil, the settlement or balance of payments between countries, probably the financial statements of the hundred or so largest corporations in the world. In the future, maybe you'll get your annual report from IBM or Volkswagen or General Electric and it'll be in SDRs.
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And...

It's happening slowly and invisibly, but you can see the momentum. That momentum is going to build until suddenly we get to the point where there is a new global reserve currency, which, of course, is highly inflationary.
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Yuan and SDR

JulieW Well-Known Member Silver Stacker

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Yuan and SDR

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