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 01 October 2016

The Petro-SDR: World Money Rising

by James Rickards

Special Report from The Daily Reckoning

The response to U.S. efforts to cheapen the dollar in 2010 - 2011 was not long in coming. It came from four directions - IMF, Russia, China, and Saudi Arabia. Enter the new world money: Petro-SDR.

Less than a year after Obama's declaration of a new currency war, the IMF released a paper that is a blueprint for implementation of a new global reserve currency called the Special Drawing Right (SDR), or world money.

On December 1, 2015, the IMF announced that the Chinese yuan would be included in the basket of currencies used to determine the value of one SDR. With China onboard, the SDR is poised to become the de facto global reserve currency.

China's and Russia's immediate response to the coming dollar collapse and rise of the SDR is to buy gold. (It's not yet possible to diversify heavily into SDR denominated assets because there are very few SDR assets available.) Russia has acquired over 1,000 tons of gold in the past seven years, and China has acquired over 3,000 tons of gold in the same time.

US Dollar Index

Combined Russian and Chinese gold purchases are over 10% of all the official gold in the world. China has also acquired billions of SDRs in secret secondary market transactions brokered by the IMF.

Saudi Arabia's response has been more subtle, but may be more dramatic in the end. Relations between Saudi Arabia and the U.S. have deteriorated sharply over the course of the Obama administration. The primary cause was the Iran-U.S. nuclear negotiations and what amounts to the U.S. recognizing Iran as the leading regional power.

In the past months, the U.S. ended the secrecy surrounding Saudi ownership of U.S. Treasury securities (in place since 1975). The U.S. also released a formerly top secret 28-page section of the 9/11 Commission Report that clearly reveals links between members of the Saudi royal family and the 9/11 hijackers and Al Qaeda.

rip-petro-usd

Ed. Note: The chart covers major currencies only, while the Fed's broad index covers all trading partners.

The Saudis have threatened to dump their U.S. Treasury securities in response to the release of the secret report, but so far that threat has not materialized.

Saudi Arabia is dealing from a position of weakness in relation to the U.S. Saudi Arabia is now running a fiscal deficit rather than a surplus, so the issue of where to invest reserves is moot. In fact, Saudi has been selling its reserves, mainly U.S. Treasuries, to cover its fiscal deficit.

The U.S. is no longer dependent on Saudi Arabia for energy supplies. It has become a net exporter of energy and has the largest oil reserves in the world. All of the conditions that gave rise to the petrodollar now stand in the exact opposite position of where they were in 1975.

Neither the U.S. nor Saudi Arabia have much leverage over the other, in contrast to 1975 when each side held powerful trump cards.


What is the Income Play Rich Investors Love? (Hint: It's Tax-Free)


This does not mean that oil will be priced in a currency other than dollars tomorrow. It does mean that a new pricing mechanism is possible and no one should be surprised if it happens.

Saudi Arabia could easily price oil in yuan, then swap the yuan for Swiss francs or SDRs, and use the proceeds to add to its reserves or buy gold. Saudi Arabia could also price oil in SDRs or gold and hold those assets or swap them for other hard currencies to diversify away from dollars.

The possibilities are numerous. The conversion of oil prices away from dollars to some alternative is just a matter of time.

G20 2016 China

All of these trends - IMF support for SDRs, Russian and Chinese support for gold, and Saudi Arabia's search for a new benchmark for oil - came to a head in Hangzhou, China at the G20 Leaders' Summit, almost seven years to the day after the Pittsburgh G20 Summit that spawned the new currency war. China's President Xi is the President of the G20 for 2016, has made strides on the world stage as an equal partner with the U.S. in the management of the international monetary system.

Now, less than four weeks following the G20 Summit, the yuan will officially join the SDR. The yuan will make up over 10% of the SDR. From there, new issuance of world money (SDRs) will be supported by China because every time the IMF issues new SDRs, they will be expanding the role of the Chinese yuan as a reserve currency.

Gold, yuan, and SDRs all have one thing in common - they are alternatives to the dollar. As momentum toward these alternatives grows, the role of dollars as a reserve currency could diminish quite quickly - like sterling's role between 1914 and 1944. The result for dollar holders will be exactly the same as the result for sterling holders: inflation and lost wealth.

New political and financial arrangements, and new forms of energy, will no doubt emerge over time.

The key to wealth preservation is to move out of the declining form of money - dollars - and into the rising forms of money - gold and SDRs - sooner rather than later.

>>>>> 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
Slow Economic Growth Will Be Around For A Long Time
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 2
News Blog
U.S. Top Source Of DDoS Attacks In Q4 2016
How Artificial Intelligence And The Robotic Revolution Will Change The Workplace Of Tomorrow
Amazon's Alexa Is A Fast Learner
What We Read Today 26 March 2017
NASA's Plan To Use A Giant Magnet To Make Mars Habitable
Mexico Faces Cloudy 2017 Outlook, Recent Data Mixed
Money Market Funds And The New SEC Regulation
Life Cycle Hypothesis
How Tight Is The U.S. Labor Market?
Infographic Of The Day: President Trump's Budget Would Make Big Cuts To Agencies Which Focus On Science
Early Headlines: GW Will Increase Rainfall, New Ohio Law Inhibits Wind Farms, Break Up California?, EU C Emissions At 22-Yr Low, Mosul Offensive Suspended, And More
The Cynical Game
Earnings And Economic Reports: Week Starting 06 June 201627 March 2017
Investing Blog
Earnings: A Lot Less Than Meets The Eye
The Week Ahead: Does The Demise Of The Health Care Bill Mean Anything For Stocks?
Opinion Blog
Yellen's Dangerous Glass-Steagall Repression
Fade To Black
Precious Metals Blog
These Gold Stocks Will Produce Much Bigger Gains Than Gold Itself
Live Markets
24Mar2017 Market Close: Trumpcare Collapses But Little Affect On The Markets
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