Thursday, May 5, 2016

Repost: IMF Officials Discuss Potential for the SDR as a Global Reserve Currency

Note: This is an article I will repost monthly as it contains valuable information


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 AIIBLooks 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

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