Friday, May 26, 2017

IMF - 50 Years After - SDR's Role in the Monetary System - Followup

Earlier we ran this article which recapped the recent IMF panel discussion on the potential for an expanded role for the SDR in the future. Now Craig Wilson follows up with his article which is a summary of what he saw as the key points discussed. Below are a few excerpts from his article published on Daily Reckoning.


"Less than a month ago a handful of the world’s policy makers gathered in Washington at the International Monetary Fund (IMF), no surprising headlines were run — but an obscure meeting and a discreet report launched exclusive signals for the next global economic crisis.

The panel, which included five of the most elite global bankers, was held during the IMF’s spring meetings to discuss the special drawing rights (SDR) 50th anniversary.  On the surface the panel was a snoozefest, but reading beyond the jargon offers critical takeaways."

. . . . .

"World money was praised for its ability to be a catalyst for international loans during the IMF spring panel discussion.

The panel discussion was moderated by Maurice Obstfeld, an established academic who serves as a Director of Research at the IMF. Obstfeld is connected, knows the right people, and can see the macroeconomic implications of SDRs."

. . . . .

"In his opening remarks Obstfeld identified, “There has been increasing debate over the role of the SDR since the global financial crisis. We in the Fund have been looking more intensively at the issue over whether an enhanced role for the SDR could improve the functioning of the international monetary system.”

“The official SDR is something we are familiar with but is there a role for the SDR in the market or a market SDR? What is the SDR’s role for the unit of account?”

Here’s the five most important signals from the world money panel, what they could mean for the international monetary system and the future of the dollar."

My added comments: I recommend this article because is provides a nice summary of the panel discussion which runs for an hour or so. If you don't have time to listen to the full discussion, you can use this summary to get the main ideas discussed.

I continue to believe that the SDR is one option that could be considered should we have another major global financial crisis so it is worth your time to learn as much as possible about it. Here, we have featured the "Real SDR" proposal from Dr. Warren Coats (former IMF) because it is an actual detailed proposal that would use the SDR as global reserve currency. It even includes a provision for making it available to the general public rather than just official entities such as the IMF and Central Banks. His detailed proposal already exists now which is something to keep in mind. 

If you want a deep dive into this topic, just go to our list of articles we have compiled here on the SDR that I think has very good information for anyone wanting to learn more. Dr. Coats directly contributed to some of the content in some of the articles and has kindly answered many questions I had on his propoasal by email. Dr. Coats headed up the SDR Department at the IMF at one time so you simply will not find a better expert on this topic anywhere in my opinion.

I continue to believe that any move towards using the SDR like this will be a very slow process unless we do get another major financial crisis sometime in the near future. That could change the pace of change for sure. My take on this new IMF panel discussion is that while they are clearly studying how to expand the use of the SDR and debating that, no plan of action to actually do that is on the near term horizon right now.

Another wild card is the election of President Trump. It is just impossible to know how he would feel about doing anything like this (replacing the US dollar as global reserve currency). Until something happens that would force him to consider an alternative to the current US dollar based system, my assumption is that he prefers the US dollar as reserve currency. Interestingly, Dr. Judy Shelton has hinted at a possible new common currency linked to gold and silver that I assume would not be the SDR, but would be something other than the US dollar. Only time will tell us what will actually happen.

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