The IMF’s Special Drawing Rights (SDR) is a form of “world money”, created in 1969 as an alternative to the US Dollar (in case the Dollar somehow fails …. that was the idea). They were issued on several occasions from 1970-80, but then there were no issues for almost 30 years, until August 2009 which was in response to the last financial crisis.
Well here we go again. The IMF knows that SDRs are unpopular, but they also know the world is desperate for liquidity right now during the Covid-19 pandemic. To exploit this crisis, the elites are thinking big about a new Bretton Woods-style conference, a new international financial system and a global tax system. SDRs would eventually replace the US Dollar, as the global reserve currency.
According to a recent Project Syndicate report, both the IMP and World Bank are “being asked to throw away their rulebooks to save the world’s imperilled developing economies.” The problem with the current financial system, hammered out in 1944 at Bretton Woods, is that it was “built for a different world,” aimed at preventing wars (think WWII) and regulating economic function on a global scale. Clearly, it was a world of industrial production, manufacturing, trade and most importantly, clear borders where physical goods, cash and commodities, were traded.
Today’s digital world hardly recognises yesterday’s economic needs and reality. A new technological and governance structure is necessary to upgrade a defunct system, so goes the argument. If you read between the lines, the prospect looks less like a rebalance and more like a “fiscal reckoning” on a global scale.
When it comes to the IMF and World bank, voting rights are based on the size of each shareholder. The G-20 nations make up the key players, the largest being the US with 16.5% voting power (and, conversely, veto power).
Although the Trump administration has generally been cooperative with the IMF over the course of President Trump’s tenure, things took a turn in recent months. President Trump’s move to halt the World Health Organisation (WHO) funding took the world by surprise. Secondly, the US Treasury Department made it clear that, according to news site Foreign Policy, it wasn’t going along with “the SDR bandwagon,” Treasury Secretary Steven Mnuchin viewing SDR expansion as “ill-targeted.”
“Because SDRs are issued on a symmetrical basis in proportion to existing shareholding, 70% would go to G-20 members, most of which did not need them. Only 3% would go to those most in need. If members of G-20 want to increase the SDRs available to poorer countries, they can start by lending them some of theirs,” states Foreign Policy.
The rumour, and big fear, is that the IMF may opt to remove the US from the global SDR basket, effectively reducing the US’s veto rights from the world state. SDRs would then be a step closer to replacing the greenback as the world’s reserve currency.
Considering the potential damage that the Fed’s QE will inflict on the Dollar, weakening its status as the world’s currency, the potential IMF move toward replacing greenbacks with SDRs would cause a massive devaluation of the Dollar, possibly up to 80%. As much as President Trump has been influencing Fed actions (despite the bank’s statement to the contrary), having pressured their 180° U-turn from raising to cutting rates amid a balance sheet reduction, President Trump has never been a fan of the Fed.
With the Fed pledging to load up its balance sheet, and with the nation’s debt sky rocketing to heights unprecedented, it seems as if the bank and nation would be heading towards a state of insolvency. But this is where things get interesting.
With the IMF attempting to pull off a fiscal reckoning minus the US Dollar, President Trump may (as his advisor Judy Shelton has advocated and as President Kennedy tried to do in 1963) pull off a global reckoning of his own, by issuing US Treasury Notes backed by gold.
The new Dollars would be pegged to gold, possibly at a modest starting point of $10K or even higher, effectively returning the Gold Standard.
So, following a massive plunge in Dollar values, we’d see a surge in gold prices and, with the new Dollars, a surge in gold-backed Dollar values as well.