Sunday, September 4, 2016

Things off to an interesting start at G20 Meeting in China + Jim Rickards & Warren Coats Comments

We mentioned that we planned to keep an eye on how the US, China, and Russia interacted at this G20 meeting. The reason for this is because China has been very aggressive in promoting that they want to see an expanded role for the SDR (eventually replacing the US dollar) as a global reserve currency. Russia has also been talking about this for some time. 

Meanwhile, some experts we have high confidence in here have said that the US may not be very enthusiastic about the SDR replacing the US dollar any time soon. Western media articles tend to emphasize how unlikely this is and talk about how little interest there is for SDR Bonds etc. Meanwhile eastern media appear to look at it quite differently and play up the expanded role for the SDR as a significant event.

In this article appearing in the Russian media Sputnik News, Putin is apparently quoted as calling for a change in the voting power at the IMF. That should go over well with the western nations, especially the US.

Just to get things started off in an interesting way, The Guardian runs this article stating that the Chinese intentionally "snubbed" President Obama upon his arrival at G20. It looks like we were right to keep an eye on this G20 meeting for just these kinds of things.

Below are some excerpts from these two articles and then some added comments.


Sputnik News - Putin: We have to move forward with IMF reform

The share of BRICS in the IMF's capital is "a step away" from the 15-percent blocking threshold, the Russian president said.

HANGZHOU (Sputnik) – The joint share of the BRICS emerging economies in the International Monetary Fund's capital has almost reached 15 percent, Russian President Vladimir Putin said Sunday at an informal meeting of BRICS leaders on the sidelines of the G20 summit in Hangzhou, China. 

"The BRICS countries saw its joint share in the Fund’s capital to increase to 14.89 percent, a step away from 15-percent blocking threshold. Without a doubt, we have to move forward to carry out an IMF reform," Putin said.

The Guardian - Barack Obama Deliberately Snubbed by Chinese at G20

"China’s leaders have been accused of delivering a calculated diplomatic snub toBarack Obama after the US president was not provided with a staircase to leave his plane during his chaotic arrival in Hangzhou before the start of the G20.
Chinese authorities have rolled out the red carpet for leaders including India’s prime minister, Narendra Modithe Russian president, Vladimir Putinthe South Korean president, Park Geun-hyeBrazil’s president, Michel Temer, and the British prime minister, Theresa May, who touched down on Sunday morning. 
But the leader of the world’s largest economy, who is on his final tour of Asia, was forced to disembark from Air Force One through a little-used exit in the plane’s belly after no rolling staircase was provided when he landed in the eastern Chinese city on Saturday afternoon.
When Obama did find his way on to a red carpet on the tarmac below there were heated altercations between US and Chinese officials, with one Chinese official caught on video shouting: “This is our country! This is our airport!”
. . . . 

Jorge Guajardo, Mexico’s former ambassador to China, said he was convinced Obama’s treatment was part of a calculated snub.
“These things do not happen by mistake. Not with the Chinese,” Guajardo, who hosted presidents Enrique Peña Nieto and Felipe Calderón during his time in Beijing, told the Guardian."
My added comments: Well, interesting way to start off a global meeting where everyone is supposed to show how united we all are in making the world a better place. In regards to the Sputnik News article, I asked Dr. Warren Coats (former IMF) if Putin was likely calling for a change in the voting power at the IMF to prevent the US from having veto power there. He gave me permission to publish this reply by email:

"I never understand what Putin has in mind, but in this case you are right that he is referring to the fact that with its quota slightly above 15 percent, the US is by itself able to block anything that requires an 85 percent majority (not very many things).  I don't think it is a big deal or very important (other than politically in the US among some people). If the U S had good reason to oppose one of the measures requiring this super majority, it is unimaginable that it would stand totally alone, that none of its friends such as UK would join it." ---- Warren Coats

Later, I asked Jim Rickards if he had any thoughts on these comments from Putin. He gave permission to publish this reply:

"There are two possible interpretations to Putin's remark.

The first is the one you offered, i.e. Putin (and BRICS) want to remove U.S. veto power.

The other, more likely in my view, is that the U.S. can keep its veto (at 16%), but the BRICS should be increased to 16% (1% more than they have now), so they have a kind of "collective veto." With the U.S. with one veto and the BRICS with a collective veto, then each side can check the other and force cooperation. Then it works a bit like the United Nations Security Council, where U.S., Russia, and China each have veto power.

Finally, the U.S. may not want the SDR to displace the dollar, but they may have no choice. Right now, things seem calm on the surface. But, in the next financial crisis, if an emergency issuance of SDRs is needed to reliquify the world, it will come with strings attached. China won't support it (with or without veto power) unless it's a step in the direction of ending the dollar's role. That could be a the law of unintended consequences from the U.S.'s perspective, but still likely to occur."   --- Jim Rickards

I want to thank both Jim Rickards and Dr. Coats for these timely comments. This allows readers to get some great ideas and perspectives on something like this as the events are actually happening. 
We will continue to monitor this G20 meeting for just this kind of news. Usually, these meetings are mostly seen as photo ops for the various leaders where everyone says how they will all make the world a better place, but nothing substantial actually happens. That may again be true of this meeting, but so far it looks like there may be some interesting sub plots to keep an eye on and China seems to want this meeting to have a different feel to it.

Added notes: This appears to be the G20 2016 Final Report with the SDR proposal. More details on this later. It's Proposal #12. Does not seem particularly significant at first glance. It looks like Proposal #8 might tie in with Putin's comments posted above since it talks about an increased quota for some IMF members. China Daily published this article on the SDR Bond issuance.


  1. Thanks again Larry, excellent article
    Maybe this whole "conversion" to the SDR, all the consequences, plans, horse trading, so on was all planned long ago
    A script written, rehearsed, props built, stage set, then played out in the real world.
    Thanks again

  2. Thank you. We will just continue to follow events and see what happens.


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  4. Chinese nationalism, and protectionism are diseases of nations when the economy goes down.

    We all need to be aware the whole world is suffering from economies declining, and dealing with less.

    Obama is really on a class with Jimmy Carter, and should be respected worldwide.