Monday, October 30, 2017

David Lipton (IMF) - The Challenges to Sustaining the Global Recovery

In this recent speech, IMF Deputy Managing Director David Lipton talks about a variety of issues that will impact the financial landscape in the future. Below is an excerpt from this speech in regards to how Fintech may impact things.


. . . . 
Digital Finance
"All of which leads us directly to the third area of change: the broader universe of digital finance, which you will be discussing this afternoon. This is playing out right now before our eyes in the online payments platforms like PayPal and China’s Ali-Pay. In only a few years, many people in China’s cities have stopped using cash altogether. In East Africa, the online banking pioneered by M-Pesa has benefited millions of people who previously lived outside the financial system.
These success stories show how Fintech can be a force for inclusion and development.
But Fintech also presents a serious challenge to traditional banking models. And as online platforms develop lending and investment products, effectively acting like banks, every regulator and supervisor must be concerned with whether the current regulatory framework is adequately encompassing these businesses. Here, too, work is underway, with Fintech firms interacting with regulatory authorities on a range of possible solutions.
But we are still talking about a business that fits broadly within our frame of reference for financial services. A case can be made that next level of this digital transformation—the emergence of crypto-currencies, and new transaction and settlement technologies—is moving well beyond familiar boundaries.
The so-called distributed ledger technology is dispensing with the backroom and moving to instantaneous transactions outside the reach of governments—and that includes the scope of monetary policy. We now see central bankers starting to talk about issuing their own virtual currencies and considering ways of regulating the bitcoins and others.
Here, too, the implications are enormous. National regulators and international standard-setters need to move quickly to define a regulatory setting that can address the issues that will emerge almost before we know it. At the same time, we cannot “throw out the baby with the bathwater” by imposing a regime that stifles innovation.
The Fund has just begun to address these issues within its mandate. Like cyber-threats, there is a great deal of work to do to understand the potential macroeconomic impact."
Added note: The speech also mentions how debt continues to grow globally. This article in Reuters points out the problem with some big numbers.

Saturday, October 28, 2017

CNBC: China Has Grand Ambitions to Dethrone the Dollar

There have been a number of news articles about the recently announced plan by China to try and get oil contracts priced in yuan (petro-yuan). CNBC runs this new article that also says China is working hard towards that goal. But this article suggests it may not be easy and may take longer than some would think. Below are a couple of excerpts.

"China is looking to make a major move against the dollar's global dominance, and it may come as early as this year.

The new strategy is to enlist the energy markets' help: Beijing may introduce a new way to price oil in coming months — but unlike the contracts based on the U.S. dollar that currently dominate global markets, this benchmark would use China's own currency. If there's widespread adoption, as the Chinese hope, then that will mark a step toward challenging the greenback's status as the world's most powerful currency."

. . . . .

"The plan is to price oil in yuan using a gold-backed futures contract in Shanghai, but the road will be long and arduous."

Please click here to read the full article on CNBC


Thursday, October 26, 2017

US Dollar in the News

Suddenly we have numerous articles appearing suggesting once again the US dollar's days as global reserve currency may be shortening. We have seen this predicted many times over the years, but this time the news that China is promoting the pricing of oil in yuan is adding some impetus to those looking for the role of the US dollar to diminish. Below are links to a couple of articles along these lines.


CNBC - China will compel Saudi Arabia to trade oil in Yuan

"China will "compel" Saudi Arabia to trade oil in yuan and, when this happens, the rest of the oil market will follow suit and abandon the U.S. dollar as the world's reserve currency, a leading economist told CNBC on Monday.

Carl Weinberg, chief economist and managing director at High Frequency Economics, said Beijing stands to become the most dominant global player in oil demand since China usurped the U.S. as the "biggest oil importer on the planet."

CNBC - World Could be Turning its back on the US Dollar

"A combination of geopolitical pressures could spark the end of the U.S. dollar as the world's reserve currency, according to the head of FX strategy at Saxo Bank.

In a quarterly outlook note titled "The world is turning its back on the almighty dollar," John Hardy claimed the U.S. currency was "increasingly dysfunctional" and there was an urgent need to replace it."
Added note: A variety of analysts in the alternative media realm are also touting this move by China as being significant. As an example. Hugo Salinas Price wrote this article recently on the topic. Jim Rickards also talks a bit about it in this recent article and this article which also looks at Jim's view of the prospects for gold in the coming months.

Monday, October 23, 2017

What is KlickEx Up to These Days?

Long time readers may recall a company we featured here awhile back that is viewed as up and coming in the Fintech space. KlickEx is headquartered in New Zealand under the leadership of CEO Robert Bell. KlickEx caught our attention due to an innovative concept for a potential asset backed cryptocurrency they presented at FinovateAsia in 2013.

This blog is always on the watch for any news related to events that might lead to major changes in our existing monetary system. Since KlickEx is engaged in financial services that could impact how money is used around the world now and in the future, we have continued to keep an eye on them as they continue to move forward. This page about the company history for KlickEx gives you a feel for what they do and their desire to tackle the challenges that exist to make it easier and less costly for the world to transfer money across borders.

It's been a while since we checked in with KlickEx, but as you can see from the link above, they have been keeping quite busy. Here are a few highlights from the past few years:

- launched the first web based money transfer system in the South Pacific in 2010

- ranked the lowest cost remittance service in the South Pacific by The World Bank 

- won best global payments initiative at the Financial World Innovation Awards in London

- named top Fintech company of the year (2013) by SWIFT & won the Innotribe Award

- CEO Robert Bell named New Zealand High Tech Young Achiever in 2013

- presentation to the South African Community Development Central Banks (2014)

- named by central banks in the Pacific as key agent of change (2015)

- CEO Robert Bell presents the concerns of the Pacific's financial institutions at the G20 conference in China (2016)

This year it appears that KlickEx is ready to expand further by working on projects that may start the process of changing how the world uses and moves money. The goal has always been to improve transaction speed, allow cross border payments, and reduce costs to the end users. Now KlickEx appears to be ready to move forward and form partnerships that can help make their vision become reality as IBM releases this news about its new partnership with KlickEx and Stellar which we covered earlier on the blog here. Robert Bell of KlickEx helped present the new concept at Sibos in Toronto, Canada alongside partners from IBM and Stellar.

Looking at this news recently released on the KlickEx web site, it appears that the news from IBM is just the start of a process intended to have an expanding global reach. Here are some key points from that news release:

Next Steps for APFII: 

Beyond facilitating the trend of reducing the price of remittances, now at a cost plateau of possibility because de-risking remains pervasive, APFII is now moving to address financial inclusion in additional ways.

- In October 2017, KlickEx, a systemically important APFII member, extended its clearing systems to process increasing amounts of regional transactions on IBMs Blockchain transaction service. In partnership with IBM, the Pacific is now the world's only multi-country blockchain backed payment infrastructure.

- To resolve de-risking and return electronic payment volumes to 80% of all transactions. Currently, this has fallen by half, to 40% due to lack of infrastructure in the sending markets, such as Australia, NZ, and the US. 

--- APFII is planning to invest $300m next year to build out the financial platforms in partnership with IBM, local Pension Funds, and local/strategic Central Banks (*several NGOs and non-member FIs have expressed interest to co-participate) to implement this.

--- $100m of the above will also be committed to resolving de-risking outside the Pacific, with the participation of three National Payment System expansions already underway in five observer markets including HK (Hong Kong), the UK and the US. 

--- When successful, APFII Members will consist of nearly 3,000 staff, and two million monthly customers, covering 25 countries. There will be real time payment and trade finance facilities to over 110 countries.

KlickEx CEO Robert Bell had this to say about these big steps forward that KlickEx is now taking:

"The South Pacific Region was the perfect choice for IBM to launch the initiative – outside the major currency trading corridors, across a mix of both emerging and mature economies, and with relatively low transaction volumes – and of course, the ability to leverage KlickEx’s trusted system and infrastructure.

KlickEx is a pioneer in leading technological innovation and sees the potential for blockchain in emerging economies.  This is the first time it is working at scale to create seamless and borderless payments across the Pacific.

I’m delighted that KlickEx is working in collaboration with the IBM Blockchain payments solution and alongside Stellar on this exciting world first – and seeing New Zealand and the Pacific continue to lead the way in payments innovation."

Robert Bell, CEO KlickEx

Friday, October 20, 2017

North Korea Threat Assessment Recap - Update from Jim Rickards

On Thursday October 19th, the Foundation for Defense of Democracies hosted an event featuring CIA Director Mike Pompeo and National Security Adviser Lt. General H.R. McMaster. This was an invitation only event that people like Jim Rickards attended. Jim kindly provided an update on his North Korea analysis for readers here after the meeting held yesterday in Washington. (see below).

The event was broadcast live (see archive here) so I was able to see what Director Pompeo and Lt. General McMaster were willing to say about North Korea in a pubic forum such as this. Below I have listed some bullet point from each speaker on this topic:

Director Pompeo

- North Korea is continuing to move towards having the capability to launch a nuclear weapon that can reach the United States

- The US believes that in the next few months North Korea may well reach the point where they could launch such an attack (although a distinction was made between the ability to launch one weapon vs. the ability to launch a more robust attack)

- President Trump has given a clear mission to the CIA and all US agencies tasked with preventing such an attack on the US -- the US is dedicated to preventing North Korea from reaching the capability to launch a nuclear weapon that can reach the US (or its allies)

- Diplomatic efforts continue and will continue to try and persuade North Korea to abandon its nuclear weapons program. At this time, it is the assessment of US intelligence agencies that North Korea does not intend to abandon the program and views it as critical to survival of the current North Korean regime

- the US is encouraged by some of the efforts China is making to defuse the situation and will monitor closely what happens next with China

My overall impression of his public comments: Pretty much in line with what Jim Rickards has told us here earlier. The US will continue to do what it can to avoid a war, however, the time is running out to solve the issue diplomatically and we can expect that a military option could be implemented in less than a year from now if nothing changes in North Korea. I did get the sense in this discussion that the US does not view the regime in North Korea as crazy, but rather that they are pursuing a strategy they believe is in the interest of their national security. The US just believes they are miscalculating with that strategy.

Lt. General McMaster

In the Q&A portion of his session, Lt. General McMaster confirms that the US is "running out of time" to solve the issue without a military option, but does express hope that "unprecedented world cooperation" can still stave that off. He repeats that if North Korea does not change, US policy is clear that the US will not allow North Korea to obtain a nuclear weapon that can threaten the US.

Jim Rickards Updated Analysis on North Korea just provided this morning (10-20-17):


Here is my updated assessment of the North Korea situation based on the meeting with Pompeo and McMaster:

Four possibilities:

1. Death of Kim Jong Un and regime change before a war: 20%
2. Sanctions work, and Kim Jong Un verifiably gives up his weapons programs and begins to denuclearize: 20%
3. Preventive attack by the United States before March 31, 2018: 60%
4. U.S. accepts a nuclear armed North Korea: 0%

I hope that's helpful.

All best,

Jim's Twitter feed

Note (10-20-17-7pm): In this just released new interview with Alex Stanczyk, Jim goes into more detail on his new updated analysis for North Korea shown just above. To go directly to the information on N. Korea, skip to the 25:35 minute mark of the interview. It is clear that his analysis is directly informed by senior US defense and intelligence officials.

Added note: CFR President Richard N. Haass seems to agree with Jim 

Tuesday, October 17, 2017

IBM Announces Partnership with KlickEx and Stellar on BlockChain Payments System

IBM has released this news notice that explains its partnership with KlickEx and Stellar to implement what could be a game changing new global payments system based upon blockchain and other innovative technology. We have covered KlickEx here as an up and coming Fintech startup based in New Zealand. This news confirms that KlickEx is ready to move forward with leading payments systems technology alongside major partners.

Below is the press release from IBM that includes links which readers can use to learn more about the IBM Blockchain initiative, KlickEx, and Stellar. KlickEx posted the news release here and Stellar added some comments here. I used bold underline type for what I felt were some key points in the news release.


IBM--KlickEx--Stellar @ Sibos 2017

TORONTO - 16 Oct 2017: SIBOS: IBM (NYSE: IBM) today announced a new blockchain banking solution that will help financial institutions address the processes of universal cross-border payments, designed to reduce the settlement time and lower the cost of completing global payments for businesses and consumers. Using IBM Blockchain, and in collaboration with technology partners and KlickEx Group, the solution is intended to improve the speed in which banks both clear and settle payment transactions on a single network in near real time.

Today, making international payments can be costly, laborious and error-prone. Transactions in different currencies can require multiple intermediaries and take days or weeks to complete. According to the World Bank, initiatives to modernize payments and provide financial access could improve the flow of currency and commerce, and help achieve the goal of extending financial services to one billion people by 2020*.

The solution is already processing live transactions in 12 currency corridors across the Pacific Islands and Australia, New Zealand and the United Kingdom. Using a blockchain distributed ledger, all appropriate parties have access and insight into the clearing and settlement of financial transactions. It is designed to augment financial flows worldwide, for all payment types and values, and allows financial institutions to choose the settlement network of their choice for the exchange of central bank-issued digital assets.

For example, in the future, the new IBM network could make it possible for a farmer in Samoa to enter into a trade contract with a buyer in Indonesia. The blockchain would be used to record the terms of the contract, manage trade documentation, allow the farmer to put up collateral, obtain letters of credit, and finalize transaction terms with immediate payment, conducting global trade with transparency and relative ease.
IBM has convened an initial group of diverse banking leaders as part of the development and deployment process, including Banco Bilbao Vizcaya Argentaria, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp. (RCBC) Philippines, Sumitomo Mitsui Financial Group, TD Bank, Wizdraw (HK) of WorldCom Finance, and other financial institutions.
 “With the guidance of some of the world’s leading financial institutions, IBM is working to explore new ways to make payment networks more efficient and transparent so that banking can happen in real-time, even in the most remote parts of the world,” said Bridget van Kralingen, Senior Vice President of IBM Industry Platforms. “Making distributed ledger technologies more interoperable is the latest example of IBM’s leadership driving the rapid advancement of blockchain.”  
"TD Bank is pleased to participate along with fellow banking leaders to observe how IBM Blockchain can support more secure and effective payments solutions," said Rizwan Khalfan, EVP and Chief Digital and Payments Officer, TD Bank. "We're focused on innovation that adds value for our customers and our business, and blockchain presents a tremendous opportunity to transform and enhance payment systems, enabling us to continue to evolve the products and services we can offer."
In keeping with IBM's commitment to open source, the solution is run from the IBM Blockchain Platform on Hyperledger Fabric and was built in collaboration with, a non-profit organization and associate member of Hyperledger, and KlickEx Group, a regional financial services company in the Pacific region. Stellar is an open-source blockchain network that is purpose-built for the issuance and exchange of digital assets. Digital assets are issued on the Stellar network as a foreign exchange bridge to allow for near real time settlement. KlickEx Group serves as the founding financial institution for the region, servicing banks, retail clients and consumers using this new network.
IBM will continue to advance the solution with the goal of expanding capabilities in order to support central bank-issued digital currencies, securities, bonds and structured financial assets. IBM Blockchain provides high performance orchestration to move payments among parties. Each payment is immutable once recorded, and settlement instructions are provided via smart contracts on Hyperledger Fabric. Initially, Stellar will provide the network and digital asset to facilitate the settlement of transactions cleared on Hyperledger.
"This new innovation and collaboration represents a significant milestone for Stellar as well as the financial technology industry as a whole," said Jed McCaleb, co-founder of Stellar. "We are using blockchain technology in production to facilitate cross-border payments in multiple integrated currency corridors. Currently, cross-border payments tend to take up to several days to clear. This new implementation is poised to start a profound change in the South Pacific nations, and once fully scaled by IBM and its banking partners, it could potentially change the way money is moved around the world, helping to improve existing international transactions and advancing financial inclusion in developing nations." 
The network is currently in use by Advanced Pacific Financial Infrastructure for Inclusion (APFII) members, a public-private partnership initially funded by the United Nations and SWIFT. It is expected to process up to 60 percent of all cross-border payments in the South Pacific's retail foreign exchange corridors including Australia, New Zealand, Fiji, Samoa and Tonga by early next year. Commercial banks such as Banco Bilbao Vizcaya Argentaria, Bank Danamon Indonesia, Bank Mandiri, Bank Negara Indonesia, Bank Permata, Bank Rakyat Indonesia, Kasikornbank Thailand, Mizuho Financial Group, National Australia Bank, Rizal Commercial Banking Corp. (RCBC) Philippines, Sumitomo Mitsui Financial Group, TD Bank, and Wizdraw (HK) of WorldCom Finance will be invited to join the network and help it expand in different parts of the world beginning in 2018.
“This is the first time anyone has made blockchain work at an institutionally viable scale,” said Robert Bell, Chairman of APFII and founder of KlickEx Group. “Through KlickEx, the Pacific has had relatively low-cost, real-time, multi-currency payments for most of the past decade, and this project was a natural next step following our work to create seamless and borderless payments across the Pacific. We look forward to the results with using IBM Blockchain as we continue to push forward with our mission to remove payment friction across borders.”
This production blockchain network with KlickEx and Stellar is one of many blockchain projects underway by IBM in financial services including foreign exchange payments netting, private equity administration, securities lending and trade finance.
About IBM
IBM is the leader in open-source blockchain solutions built for the enterprise. As an early member of Hyperledger, an open source collaborative effort created to advance cross-industry blockchain technologies, IBM is dedicated to supporting the development of openly-governed blockchains. IBM has worked with more than 400 clients across financial services, supply chains, IoT, risk management, digital rights management and healthcare to implement blockchain applications. For more information about IBM Blockchain, visit

About KlickEx is an award winning regional cross-border payments system delivering financial infrastructure for emerging markets. It has been responsible for dramatic uptake in digital financial services in unbanked regions of the world, and lowering costs for banks, central banks and consumers in low liquidity currencies. KlickEx is also a regional compliance system, active in reducing compliance costs for countries linked to the system. KlickEx owns many of the Pacific's largest Money Transfer Operations, and is the region's largest clearing hub, accounting for over 60% of annual retail foreign exchange transactions (by value and volume) in key corridors. Its key presence is in the Pacific and Europe, and it is a founding member of processing more than 775,000 transactions per second, per billion of population.

About is a Silicon Valley based nonprofit organization that supports the Stellar network, a free, open-source network that connects diverse financial systems and lets anyone build low-cost financial services—payments, savings, loans, insurance—for their community. The Stellar network enables money to move directly between people, companies and financial institutions as easily as email. This interconnectivity means more access for individuals, lower costs for banks, and more revenue for businesses. For more on, visit

*Source: World Bank UFA2020 Overview: Universal Financial Access by 2020. April 20, 2017.


My added comments: This new collaboration between IBM, KlickEx, and Stellar makes a lot of sense once you dig into the goals of all three organizations. IBM clearly desires to be a global leader in the expansion of the use of blockchain technology in many different sectors. Nothing is more fundamentally important than a global payments system that anyone can use on mobile device at very low cost to complete payment transactions around the world. We have talked about this concept many times here on this blog. 

KlickEx provides years of experience in delivering this type of payments system on a regional basis in the South Pacific. The CEO of KlickEx, Robert Bell, is a very passionate advocate for financial inclusion and low cost remittances and has been recognized around the world for his efforts in that area. It only makes sense that he would want to join up with IBM to deliver a low cost payments system on a broader platform than just the South Pacific. We felt like when we first learned about KlickEx that it would be a company to watch and this big step forward for KlickEx is an example why. I would expect KlickEx to continue its efforts to assist in spreading low cost payments and cross border transactions to more and more places around the globe based on the real world experience they have gained over the last decade in the South Pacific. I would also expect that this could be the start of a process that can lead to some initial central bank digital currencies, perhaps starting in Singapore (seems IMB's Jesse Lund agrees).

All you have to do is look at the Stellar mission and mandate to see why they would want to be involved with this project. Once again, they are dedicated to doing what they can to bring low cost payments and money transfers to the world. This is particularly important for workers who are un-banked or who may be sending remittances across borders back to family members in another country. 

The common thread you see in all three of the organizations involved in this project if you look into them is that they desire to make the financial system accessible to those who cannot access it now and to make the movement of money for payments and transfers a much more efficient and low cost operation for everyone involved. 

We note that IBM states in the press release that this system is designed to be "interoperable" with existing banks and central banks . This is a huge point that should not be overlooked.  

Robert Bell (KlickEx) says this:

“This is the first time anyone has made blockchain work at an institutionally viable scale,”

Robert helped present this concept at the Sibos conference in Toronto, Canada alongside Jesse Lund of IBM and Jed McCaleb of Stellar.

Widespread adoption of this by both banks and central banks should not be surprising over the coming months and years. This is the type of thing that can lead to more major monetary system change like we watch for here over time. 

This news attracted quite a bit of attention globally as can be seen from these articles:


Business Insider

Silicon Republic

IBS Intelligence

Computer World

Enterprise Times (UK)  "IBM becomes the blockchain monster"


City A.M.

FX Week

Coin Desk

ZD Net

Banking Technology

Banking Business Review


Added note:

"Whether it’s Bitcoin, or something better that soon follows like a central bank issuance, digital currencies will offer tangible improvements to financial services, and especially international payments."       . . . . . .

"Anyone with a mobile device will be able to hold a digital bank account (truth is, they already can). Hopefully this will lead to a reduction in corruption as barriers between people and money disappear, enabling peer-to-peer philanthropy and direct financial aid. No place on earth will be out of reach."

Monday, October 16, 2017

Robert Pringle - Ten Year Retrospective

Robert Pringle has posted a series of articles on his blog he calls a "10 Year Retrospective". He discusses some lessons he feels we can learn from the last global financial crisis. Below are links to each of the three parts in the series with a brief excerpt from each part just below the link.


"The financial crisis showed up the defects of monetary models. These in turn reflected a flawed idea of money. That is why central banks failed to anticipate the crisis and could not deal with it effectively when it arrived. That is the message of The Money Trap."

The lead-up to the crisis was marked by the near-universal adoption of inflation targeting. This became sacrosanct as the framework for monetary policy ( implicit in the case of the Federal Reserve). It became the nearest we had to a global monetary standard.  The first lessons of the crisis is that this model was deeply deceptive."         . . . .

"A leading economist has predicted that central banks will  not remain independent much longer. His forecast was made  at  a Bank of England conference called to celebrate – yes – 20 years of independence. Guests included Mrs Theresa May, the Prime Minster. It was opened by the Governor, Mark Carney, who drew a different, but equally startling, lesson from the crisis."    . . . .
. . . .
"John Taylor (he of the Taylor Rule) advocates an international reform whereby each central bank would announce and agree to abide by its own rules for monetary policy – an international move to a rule-based system. He understands, as few others do, that a fatal flaw in QE has been its adverse international repercussions."   . . . .
My added comments: I try to feature anything new that Robert Pringle posts to his blog (The Money Trap). He has years of experience in working with central bankers around the world and his insights are always valuable. They also provide a rare glimpse into the world of central banking as seen from the inside. 

Saturday, October 14, 2017

WSJ - Have You Heard of IMF Coin?

The Wall Street Journal now runs this article that once again talks about things we have been covering and talking about here for some time. Below are some excerpts.


Forget Bitcoin. Have You Heard of IMFcoin?

IMF would like its special drawing rights to have a digital future, and has spent the past year thinking of a broader role for it

"Forget Bitcoin, think IMFcoin. The head of the International Monetary Fund has been musing about the future of money, and thinks there is a decent chance it will come from the guardian of the world’s monetary system.

Christine Lagarde, IMF managing director, held up the organization’s special drawing rights (SDRs) as having a possible digital future at a Bank of England forum last week, and put what she said was a “question mark” over whether SDRs could replace existing international currencies. “It’s not a far-fetched hypothetical,” she said, and the IMF needs to be ready."

. . . .

"There is little chance U.S. politicians will want to give up what a French finance minister once called the “exorbitant privilege” of the dollar, no matter what Ms Lagarde, another former French finance minister, might suggest. (note: this comment is from the author of the WSJ article, the following sentence is attributed to Director Lagarde and the bold emphasis is mine) As she noted, the IMF would need a “geopolitical situation that would be propitious” for the changes she is speculating about to happen."

My added comments: I will just point out again that all this is something we have talked about here for some time now. This older article and this very recent article are examples.

At this point maybe I should explain what prompted me to write on this topic since it is now appearing in mainstream media and seemingly everywhere. I first began to think about this idea when I saw a demonstration presentation (see this video) that talked about the idea of an asset backed cryptocurrency that could be used by banks and central banks (and perhaps even the IMF) in the existing system some day. I began to to research this concept and discovered that the idea of using the SDR in a different way than it is used currently outside the IMF has been discussed at times over the years. I learned that even now there are so called "private SDRs" outside the IMF that can be used. However, these are not official SDR's used by IMF member nations. Instead they are more like someone simply owning an investment in the 5 currencies that make the current SDR basket in the same ratio as they are used in that basket. Not really an SDR and certainly not any kind of legal tender currency of its own. An 'SDR denominated bond' has to eventually be converted back into some kind of national legal tender currency to utilize the funds in the private sector.

But thinking about the concept, it seemed like it could be possible some day for the IMF to consider using the SDR in a new way (more like a real currency anyone could own) and that the new technologies arising in the fintech arena might be considered as part of that process. Also, I have followed Jim Rickards now for many years and he has never wavered in his prediction that the SDR would likely be put forward as a potential replacement for the US dollar in the next major global crisis which he also predicts will eventually arrive.

All this led me to dig into the topic of the SDR and try to find as much accurate information on it as I could in the event these forecasts do pan out. I created this page on this blog to archive what I could find and have written about here.

These articles include a lot of direct input from Dr. Warren Coats who at one time was the head of the SDR Division at the IMF. I am pretty sure you will not find a more informed expert on the SDR anywhere on the earth than Dr. Coats. 

I have always wondered and also speculated about whether the IMF might some day consider a "digital version of the SDR" given all that I mentioned above. Now we have IMF Director Lagarde talking about it openly in a public speech and this article in the Wall Street Journal discussing the idea. I feel like this is confirmation that the topic is important (as I have tried to emphasize here for some time) and that the information that has been presented here is pretty accurate as best I could make it. I don't claim to be an expert, but I have been fortunate to get direct input from some people who I do view as experts. 

So, a question that may arise is if I believe this is going to happen and also if it will be a good thing if it does happen. The only honest answer I can give is, "I don't know", to both questions. I don't have any reason to believe right now that we are close to some kind of digital version of the SDR (blockchain based or not) that would replace the US dollar. As far as I know, while we now can confirm the idea of a digital version of the SDR has been at least mentioned by Director Lagarde, there is no indication that the mechanics to actually implement such a thing currently exist at the IMF. 

To get to that point, all kinds of things would need to happen that have not yet happened as far as I know:

- the IMF would have to have some kind of system in place that could implement using the SDR in this way. This is a formidable task and would require a lot of testing etc. As far as I know, nothing has even been started along those lines (although some individual central banks are heading in that direction)

- changing the way the SDR is used like this would require approval of the IMF member nations

- the US retains veto power over any votes taken at the IMF along these lines

-  the only public statement I know of from the IMF on this is that they are currently studying whether or not to promote a broader role for the SDR in the monetary system. 

- no public report on this study has been released as far as I know

- the best information I have is that perhaps next year the IMF may go forward with some kind of promotion for broader use of the SDR based on their internal research, but as far as I know, that would more likely be the "private SDR" mentioned above and not the official SDR used by member nations

One statement that Director Lagarde is quoted as making in this WSJ article did catch my attention (in bold underline below):

"There is little chance U.S. politicians will want to give up what a French finance minister once called the “exorbitant privilege” of the dollar, no matter what Ms Lagarde, another former French finance minister, might suggest. As she noted, the IMF would need a “geopolitical situation that would be propitious” for the changes she is speculating about to happen."

That last sentence attributed to Director Lagarde is almost word for word what we have said here now for quite some time. We have said that absent a new major global crisis, these kinds of changes are more likely to take place over a long time period because of the difficulty in getting global cooperation from individual central banks beholden to their own countries and because the political will to make these kinds of changes does not appear to be present at this time. We speculated that under  severe crisis conditions, things could possibly change and lead to faster consideration of these kinds of changes. This statement attributed to Director Lagarde seems to confirm that analysis as best I can tell.

As to whether this kind of change would be good or not, I have no idea. I know that Dr. Warren Coats has a proposal on the table to use the SDR in a new way and we have covered that here extensively. I feel completely confident that Dr. Coats is deeply concerned that any kind of proposal to use the SDR as a global reserve currency be based upon strict rules (Currency Board rules) that would not allow the SDR to simply be created at will by the issuer (and likely stimulate inflation). If the SDR is proposed as a global reserve currency some day, I do hope that the proposal Dr. Coats has put forward will be the basis for such a plan because I know he has put years of study into the idea and understands that a currency must be stable in value over time to serve the public well.

All kinds of other questions have been raised such as whether the SDR should be fully or partially backed by gold for example. The IMF does own gold reserves so they could do that (but I think gold would need to be at a higher price). Dr. Coats prefers to see a basket of goods used rather than just gold because he believes that would be more stable over time.

I certainly do not know what would work best or if any of this will actually ever happen. The goal here is to try and accurately inform and educate readers on this topic so that whatever opinions they form will be based on accurate information. Some day a proposal to do this (use the SDR as global reserve currency) may be put forward. It is better to understand this topic than to not understand it if that day ever does arrive. I see a lot of misinformation on this topic for sure, so I try very hard to get the information presented here as accurate as I can. You can review all the information archived on this blog page.

Added note: I had several experts review this article and no significant changes were suggested to me.

CNBC runs this article on the same topic.