Saturday, June 10, 2017

IMF Podcast - New Life for the SDR?

We have not heard a lot out of the IMF since last fall when they setup an Advisory Group to look into the potential for broader adoption for the SDR. However, they did have a panel discussion on it at the April IMF meetings which we covered here and here. And now IMF puts out this somewhat promotional podcast of Mohamed El-Erian arguing for broader use of the SDR. You can listen to the podcast here:

How could the IMF’s SDR help boost the global economy? Listen to in latest

The IMF’s Special Drawing Rights have failed to gain real traction in the international monetary system, but Mohamed El-Erian, Chief Economic Advisor at Allianz and former IMF Deputy Director, believes a greater role for the SDR in global markets could help strengthen the world economy. Contibutors: Mohamed El-Erian, Chief Economic Advisor at Allianz and former IMF Deputy Director.


Added note: This discussion by Mohamed El-Erian is based on using the SDR as it is designed today tied to a basket of five national currencies. You can contrast that with the "Real SDR" proposal of former IMF Dr. Warren Coats here.

While Mr. El-Erian's private SDR is a part of Dr. Coats proposal, there are some differences. Dr. Coats would issue SDR's under Currency Board rules whereby the SDRs are bought and sold in exchange for other assets. The IMF would not have discretion to create SDR's as they do now under the SDR allocation system. The market demand for SDR's would determine how many are issued under the Currency Board, not the IMF.

In addition, Dr. Coats would anchor his Real SDR to a basket of goods in order to tie the currency to the real economy. Dr. Coats feels this kind of "Real SDR" would function more like the old gold standard, but be easier to administer and maintain going forward than an actual gold standard. He cites examples of countries now using the Currency Board approach to illustrate that it can work in the real world. In addition, Dr. Coats proposal would eventually allow for private citizens (like you and I) to own Real SDRs if we wanted to. The Real SDR would not be compulsory, but would compete in the currency markets for user demand

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