econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 28 September 2016

The Federal Reserve Note

from Money Metals Exchange

-- this post authored by Clint Siegner

Some say the U.S. dollar may die 5 days hence. The Chinese renminbi will kill it. Much is being made of plans by the International Monetary Fund (IMF) to add the renminbi to its basket of strategic reserve currencies called Special Drawing Rights (SDR). The IMF will make the change on October 1. While the implications for the Federal Reserve Note, currently the U.S. dollar, as the world's primary reserve currency may be profound over time and the importance of this even should not be overlooked, the impact is unlikely to happen overnight.

The composition of the SDR may change on October 1, but few people understand what the SDR is. Even fewer actually have any experience trading it. For the many who wonder what an SDR is, here is a brief description from the IMF;

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. As of March 2016, 204.1 billion SDRs (equivalent to about $285 billion) had been created and allocated to members. SDRs can be exchanged for freely usable currencies. The value of the SDR is currently based on a basket of four major currencies: the U.S. dollar, euro, the Japanese yen, and pound sterling. The basket will be expanded to include the Chinese renminbi (RMB) as the fifth currency, effective October 1, 2016.

The IMF actually decided to make October 1st's changes to the SDR one year ago. Some expected that decision would represent the death knell for the dollar. But when the announcement came, the currency markets hardly noticed.

Mass psychology - or relative confidence - is what ultimately determines whether or not a dollar holds value. Not much will happen October 1st if not many people care.

International Monetary Fund

There have been many other threats to the confidence that underpins the dollar. Among them were straight-forward and widely publicized assaults; trillion dollar federal deficits, metastasizing debt and an explosion in the supply of U.S. dollars. If years of Quantitative Easing - the Fed's program to gin up trillions in new dollars with which to buy Treasury Bonds and garbage mortgage securities - didn't torpedo confidence, a far more obscure institution like the IMF may not do it either when it changes the composition of their arcane supranational currency.

That said, October 1st could mark an important waypoint on the long road to oblivion for the U.S. dollar. The Chinese have been openly advocating for SDRs to replace the dollar as world reserves, and this event is an important step down that road.

In 2009 Zhou Xiaochuan, governor of China's central bank, called for the creation of "an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run." There are many nations who consider the reign of "king dollar" tyrannical.

The IMF has big plans for the SDR. There will soon be an offering of SDR denominated bonds. IMF officials hope to see large and liquid foreign exchange and bond markets modeled after those where dollars and Treasuries are traded. If they succeed, it is easy to imagine developments such as oil exporters demanding payment in SDRs and central banks swapping their vast reserves of Federal Reserve Note. In other words, the IMF intends for the SDR to replace the Federal Reserve Note as the world's reserve currency.

However, that outcome is by no means certain. The SDR is nothing more than a basket full of flawed fiat currencies. Like the Federal Reserve Note, the others are backed by the full faith and credit of irresponsible governments who would be insolvent but for their printing presses. This includes China's renminbi.

We fully expect the U.S. dollar will be dethroned one day, and the SDR may be part of that transition. But nothing will solve these growing problems until gold and silver are restored to broad use as money. The world needs honest money, not a basket of paper.


About the Author:

Clint Siegner

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.


>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted. You can also comment using Facebook directly using he comment block below.




Econintersect Opinion


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Why Long-Run Theories of Profit and Accumulation Fall Short
Brexit - Who Wins and Loses
News Blog
Best And Worst States To Retire In The United States
April 2017 Texas Manufacturing Survey Continues to Expand
March 2017 CFNAI Super Index Moving Average Declined
What Is The Informal Labor Market?
Changes In Labor Force Participation
Infographic Of The Day: 10 Habits Of Millionaires For Building Wealth
Early Headlines: Asia Stocks Mostly Up, China Down, Dollar And Oil Up, Gold Down, European Stocks Open Up, 2nd SCOTUS Seat For Trump?, SCOTUS Gets Gerrymander, UK Has Huge Gender Pay Gaps, And More
Most Read Articles Last Week Ending 22 April
GOP Healthcare Plan Would Cost The Poor And Old The Most
These Amazing Creative Animals Show Why Humans Are The Most Innovative Species Of All
Earnings And Economic Reports: Week Starting 24 April 2017
What Americans Think About Climate Change
What We Read Today 23 April 2017 - Special Public Edition
Investing Blog
Market And Sector Analysis 23 April 2017
Markets Rally As Expected
Opinion Blog
America's Gilded Age 2: On The Rocks
What Does The Strong Q1 Growth Mean For China?
Precious Metals Blog
Three Gold Plays For The New Era Of Chaos
Live Markets
24Apr2017 Market Update: DOW Up Triple Digits, WTI Crude Trading In The Low 49's, US Markets Trading Mostly Sideways, US Dollar In The High 98's
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved