Friday, March 4, 2016

IMF SDR: An Emerging Global Currency? - Must See Video

We featured an interview with Dr. Warren Coats here on the blog in January. Dr. Coats has a proposal designed to encourage adoption of the SDR used at the IMF as a true global reserve currency. In February Dr. Coats and current IMF official Dr. Thomas Krueger were the featured speakers at a presentation on SDRs sponsored by the Chicago Economics Society in Washington, DC. You can watch the presentation on the video embedded just below. Following that is a brief summary of the contents of the presentation.

This presentation along with the Q&A session that followed with the audience has a wealth of important information about the prospects for the SDR some day becoming a true global reserve currency that could even replace the US dollar. This is a must see video for readers here and anyone you know who may have interest. Also, please note the quote Dr. Coats provided us to use for this article below.



Here is a brief summary of just some of the important information covered in this video:

- introduction to IMF official Dr. Thomas Krueger who works with SDRs currently

- introduction to former IMF Head of SDRs - Dr. Warren Coats

- some history and background on SDRs

- an explanation of the distinction between official SDRs used at IMF and "private SDRs"

- Dr. Krueger talks about some realistic ways SDRs could be more widely used while also noting some of the factors inhibiting broader use of them (mainly the dominance of the US dollar)

- Dr. Coats reviews his "Real SDR" Currency Board proposal to explain how the use of private SDRs could expand the role of SDRs as a global reserve currency

- both speakers discuss the process in detail of various ways the SDR could gain broader adoption both within the existing IMF rules and with some changes to those rules

-the potential timing for adoption of the SDR as a global reserve currency is discussed (the time frame may surprise you)

- Dr. Coats notes that some changes to increase adoption of the SDR just require the "political will" to make some changes. He hopes that China might be willing to look at broader SDR adoption by issuing SDR bonds in the AIIB. Looks like China was paying attention in this Wall Street Journal article.

- The speakers (Dr. Krueger and Dr. Coats) were followed by a very interesting Q&A session with the audience where some excellent questions were raised and answered

- In the Q&A session (around the 1 hour mark in the video) Dr. Coats notes that Donald Trump is attracting support in his campaign by expressing concern over the offshoring of US manufacturing jobs. He adds that perhaps public concern with the loss of manufacturing jobs could lead to more interest in the future in the US for an international reserve currency. Dr. Coats feels that the loss of these jobs is tied in part to the US dollar being the global reserve currency (leading to payments imbalances globally over time)

-at around the 57 minute mark in the Q&A session they are asked what "event" could trigger the use of the SDR as a global currency. In the answer Dr. Coats explains how the issuance of private SDR's by banks could be done. Both Dr. Krueger and Dr. Coats agree that a major crisis involving the value of the US dollar (and loss of confidence in it) would have to take place for the SDR to step forward as a viable alternative

In addition we asked Dr. Coats if he had any thoughts on this presentation and any progress he sees towards broader adoption for the SDR as discussed in this video. He offered us this comment:

“In this presentation we were able to outline why it would be a good thing to replace national currencies as international reserves with an international one such as the SDR and to outline some steps toward that goal. It is generally believed that only an international financial crisis will precipitate a change in the international monetary system. Perhaps, but if so it is important to have a strong SDR waiting in the wings to take on that role when the crisis hits.”

Added notes: Dr. Coats answers some questions on this video presentation from a blog reader here.

Dr. Coats explains why he thinks the world needs a reserve asset with a "hard anchor" here

My added comments:

Having covered SDRs here on this blog now for quite some time we know that there are a couple of huge questions in the minds of people all over the world on this topic. They are:

1) Will we get another major financial crisis worse than 2008 as predicted by Jim Rickards and other credible analysts in the next few months or years?

2) If we get the crisis, will that event lead to a more prominent role for the SDR in replacing the US dollar as the leading global reserve currency.?

I feel we have covered these questions here on this blog as well as any media publication on earth. We have dug into everything we can find to help readers learn more on this. Our search has led us to some of the leading experts in the world bar none. Included is Dr. Warren Coats featured in this video. This video will provide you with answers to many questions directly from an IMF official who works with SDRs currently (Dr. Krueger) and the former head of the SDR Division at the IMF (Dr. Coats). 

There is simply no better information available on this topic anywhere in our view here. It is important that more people learn about these issues and gain an understanding of the SDR because it could play a much more prominent role in the global monetary system in the future. Especially if we do get another major crisis. We have said that here on this blog for quite some time primarily based on Jim Rickard's work on this topic along with the work of Willem Middelkoop. (Dr. Coats mentions Jim Rickards at around the 59:30 mark in the video above). 

Now we have direct confirmation from a current and a former IMF official who are experts on SDRs related to what we have been covering here (see Dr. Coats quote he provided us above). Please take time to watch this video and encourage anyone interested in these issues to do so as well. It is loaded with valuable information.

Below is a picture of a theoretical 100 SDR currency note used as a backdrop at the SDR discussion meeting. No such notes actually exist at this time. During the discussion Dr. Coats explained the difference between official SDRs issued at the IMF and private SDRs. This is a complex topic and it's hard to find high quality information on it anywhere, especially from experts like these.

One other added note: China gets a mention of the SDR into the recent G20 communique as this Wall Street Journal article notes. They call for broader use of the SDR.

SDR talk/UC alums Dr. Krueger & Dr.Coats w/ Career trek, connecting to Alums

Additional added note: A thank you to both Jim Rickards and Willem Middelkoop for a retweet on this article link (see below). It will help more readers be aware of it. The video is fairly long, but has important information in it.


  1. Won't this drive inflation in the USA as it will no longer be the worlds reserve currency? Is this not also a step to a one world governmemt.

  2. Good questions Bob. My understanding of Dr. Coats view is that his proposal would involve the US giving up some sovereignty on the currency situation, but he feels it would be in the US own interest to do so for reasons he explains in his proposals. I think he knows that would generate some controversy. I will add that if you listen to the full video, both Dr. Krueger and Dr. Coats imply that such a change is not likely any time soon due to lack of political will unless a crisis were to arise and change the current attitude inside the present system. Thank you for the questions!

  3. One added note. You can find more details on Dr. Coats proposal at this link:

  4. I wrote a paper for a post-graduate economics class "What is Gross National Product?!" I had difficulty finding anything about this. The International Monetary Fund, The United Nations, and the World Bank were my best and almost only sources. I think the best definition I found was for a country to measure an economic endeavor's net benefit to the capital worth of its country. If it produces smog, toxic wastes, etc. the cost of cleaning these up would be subtracted from the benefit. Many policies are enacted as a percentage of GNP. To be financially accurate, I think the costs of waging war should be subtracted from GNP. If a country is technically advanced and exports weapons systems, the income from this would count as an addition to that country's capital wealth. Likely, the IMF definition of products that qualify for SDRs is a most internationally pure definition; because domestic wealth in stationary real estate, etc. cannot be exported. Seems to me, if the world again experiences a credit crunch similar to 2008, that continued out of control, the only international financial game in town might be SDR's!

    In publicly held companies, when the sky is the limit for executive salaries, the theories of competition and trickle down no longer work properly. And these costs increase the price of their products and are a tax to their customers. If stockholders overpay their CEOs then maybe corporate income should be taxed. Possibly CEO's should receive a base salary equal to the total of what the top 15% of their employees make, divided by the number of employees; but with a small added percentage of company profits that totals a maximum percentage of their base salary. Submitted by Adrian Zolkover

  5. Lots of good guesses Adrian, but in the end isn't it those with the pencil that "figure"

    the final GDP numbers?

    1. I think the numbers are meaningless or misleading when they lack qualifications and definitions. Applying those qualifications and definitions would certainly, particularly at the beginning of the process, be subjective. A goal and requirement would be to have people trained in the field they measure - but without vested interests - perform quality controls and adjust and refine the process; i.e. how much pollution results from a given activity, or what is the activity worth to begin with. And in time the process would become more measureable and objective. There could be written policy statements about this, that should be reasonable, and might become more specific as expertise increases. Submitted by Adrian Zolkover

  6. To the point. What are the provisions regarding open audit of the SDR division of the IMF?

    1. I don't know of any provisions that exist to do an audit of the SDR Division. Right now the official SDR is just an internal unit of account at IMF so I don't of any outside public authority that would have the ability or interest in that type of audit. We are a long ways right now from the SDR serving any other function than it does today, so I doubt there would be much interest in an audit for now.