Was the SDR Just Chosen as the New World Reserve Currency?

The Telegraph’s lead financial writer Ambrose Evans-Pritchard argues that “the world is a step closer to a global currency, backed by a global central bank, running monetary policy for all humanity.”

He’s referring to the G-20′s authorization of $250 billion in IMF Special Drawing Rights:

A single clause in Point 19 of the communiqué issued by the G20 leaders amounts to revolution in the global financial order.

“We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity,” it said. SDRs are Special Drawing Rights, a synthetic paper currency issued by the International Monetary Fund that has lain dormant for half a century.

In effect, the G20 leaders have activated the IMF’s power to create money and begin global “quantitative easing”. In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body.

***

President Barack Obama [commented] “I think we did OK,” he said. Bretton Woods in 1944 was a simpler affair. “Just Roosevelt and Churchill sitting in a room with a brandy, that’s an easy negotiation, but that’s not the world we live in.”

***

The Russians had hoped their idea to develop SDRs as a full reserve currency to challenge the dollar would make its way on to the agenda, but at least they got a foot in the door.

There is now a world currency in waiting. In time, SDRs are likely evolve into a parking place for the foreign holdings of central banks, led by the People’s Bank of China. Beijing’s moves this week to offer $95bn in yuan currency swaps to developing economies show how fast China aims to break dollar dependence.

Has the SDR already quietly won out against competing world reserve currencies? Evans-Pritchard seems to think so.

If correct, it will take some time to replace the dollar as reserve currency. But it may be starting.

This entry was posted in General. Bookmark the permalink.

 

 

Twitter