How Would "SDR Denominated Bonds" Work? + A Comment from Jim Rickards

With all the news lately about the push to issue "SDR Denominated Bonds" I thought it might useful to ask the question: How Would SDR Denominated Bonds actually work? This whole idea is a foreign concept to most of us as we use the currency that is legal tender where we live for our regular financial transactions. In the US we spend US dollars. If we buy US government bonds with savings those bonds are "denominated" in US dollars. When we sell the bond (or it matures) we exchange it for US dollars, etc.

I thought that a simplified example using an SDR Denominated Bond might make it easier to see how such a thing would work. Since the IMF recently talked about SDR assets that "any parties could hold" we will make the assumption in this example that I am a US citizen who would like to own an SDR (denominated) bond. Let's see how we might buy and sell such a bond if we could own one.
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For the purpose of the example, let's say I live in the US and want to own a 10,000 SDR bond.

In order to buy a 10,000 SDR denominated bond based on the current exchange rate (as of 8-5-16) of about $1.40 for 1 SDR I would have to pay $14,000 US dollars for a 10,000 SDR bond.

Now, let's say a month later I needed the money to spend and I wanted to sell my 10,000 SDR bond. During that month the US dollar dropped in value vs. the SDR such that the exchange rate is now $1.42 for 1 SDR. I would sell the bond for $14,200 US dollars based on the new exchange rate. I have to sell it and convert it back in to dollars to be able to spend the money since I cannot use SDRs for legal tender. Notice that I made a $200 gain in US dollars because the US dollar dropped in value vs. the SDR during the month I owned the SDR bond. (see Jim Rickards comment below).

To simplify things, I would assume that interest rates did not change during the month and had no impact on the value of the bond. 

I ran this simple example by both Dr. Warren Coats and Jim Rickards to be sure it is accurate. They both told me it is. Jim Rickards went on to add an interesting point I had not even thought of about the US Treasury exchanging US dollars for SDRs. Here is what he explained to me about that:

"Your example is correct. Notice how you profited (in dollars) when the dollar went down. That's because the other SDR components went up against the dollar. When you convert dollars to SDRs, you are short the dollar to some extent. That's important because when the U.S. contributes to the IMF resources, we send the IMF dollars and they give us a note denominated in SDRs. So, in effect, the U.S. Treasury is shorting their own currency when they finance the IMF. Very insidious for Treasury to short the dollar." -- Jim Rickards

A key point to understand is that right now in order for a private entity to use an SDR denominated bond in the real world, they must convert it back into a legal tender currency like US dollars, Euros, Yen, etc. The IMF actually distinguishes a private SDR asset (like an SDR denominated bond) as an "M-SDR" to make it clear that this version of the SDR is not the official reserve SDR (O-SDR) issued by the IMF itself. It is this so called private SDR that Dr. Warren Coats talked about in our earlier article here.

M-SDRs are not legal tender in the US. If I did sell an M-SDR denominated bond I would have to convert it back instantly into US dollars to be able to use the money in the US. If I lived in Europe I would convert it back into Euros and so on. If I were a business that transacted in both US dollars and Japanese Yen I could convert the M-SDR bond into both of those currencies in any ratio I wanted to as well. But I would have to convert it back into something other than M-SDRs to be able to use the money.

If the M-SDR were to someday become a legal tender currency that anyone could own and be used globally, then I could spend M-SDRs anywhere they were accepted as legal tender. This is not possible today. In fact, neither the O-SDR or the M-SDR are actually currencies right now in the way that the average person would think of a currency. I think that trying to convert them into something like that would require a lot of public education as most people have little or no awareness that SDRs even exist.

Hopefully, this simple example will help in understanding how an "SDR Denominated Bond" would work under current legal tender laws. As you can see, the issuance of SDR Denominated Bonds is kind of a first step towards broader acceptance of the concept of the SDR as a currency, but is still quite a long way from the SDR becoming an actual global reserve currency usable in daily transactions by private citizens.

The IMF moves very slowly on things like this so unless another major crisis were to create a sense of urgency, we can expect that an SDR global currency usable in daily transactions by everyone is not on the near term horizon.

Added note: This is the second of three articles on SDR basics leading up to the G20 meeting in September when we expect some news on the SDR. Here was the first. For more info on the SDR, see our list of articles here.

Jim Rickards - A "Disinformation Agent"?

When you write a blog like this it is necessary to daily review all the sources of information you use to stay informed in case something new pops up. This week I see two alternative media sites running articles suggesting that the US government is sending out "propaganda agents" to mislead the public on how much gold the US really still has in its possession.

 One of the articles mentions Jim Rickards by name in suggesting he is not only misleading the public on the gold question, but is also trying to "sell the idea of using the IMF SDR to the world as a reserve currency replacement for the dollar". Here is a link to that article. This article also refers readers to a King World News article suggesting a similar idea (but does not mention Jim Rickards by name). Readers here know we often cite Jim Rickards interviews and articles. So how do we react to all this? Let's take a look.

I have followed Jim Rickards now for a number of years. The reason I cite his articles and interviews is because his track record on forecasting is very good. In addition, he provides substantial documentation and evidence for his analysis and views. Something I view as very important in presenting information to the public. Especially to people new to all these complicated issues related to the monetary system.

The articles that I noted above that are critical of Jim Rickards make two basic arguments. One is that he is misleading the public on the actual physical gold held by the US in its possession. The other is that he is trying to sell (or prepare the public to accept) the idea of the IMF SDR as a new global reserve currency to replace the US dollar.

Regarding the first criticism, in every interview or article I have seen by Jim Rickards on the US gold holdings he states that he believes there is gold leasing taking place. There is good evidence to support this as we noted in an earlier article we ran on Central Banks and gold. However, there is no evidence that I know of that proves any physical gold is missing that the US reports owning. In the article linked above, we noted the official US Treasury and US House Finance Committee reports that state the official gold holdings. While I can understand why some may be suspicious of those reports since the US is not willing to do a full audit on the gold, suspicion is not evidence. If someone has evidence (proof) that actual physical gold is missing, they should come forward with it. Otherwise, they should state it is their opinion the gold is missing because without proof there is no way for any of us to verify it either way. I don't see how Jim Rickards is misleading the public by simply accepting the reported physical gold inventory issued by the US Treasury. If those figures are wrong, then it is the government reports that are misleading. Again, we cannot know how much leasing has been done because the US Fed refuses to disclose that information. 

Regarding the second criticism, I have heard Jim Rickards discuss the topic of the IMF using the SDR as a reserve currency in the future many times. I have never heard him suggest he favors that. I did not get the impression he is attempting to "sell" anyone on that idea. In fact, in several interviews that I heard, he goes out of his way to suggest that he thinks a fiat version of the SDR will not work and will eventually give way to a gold backed system one way or another. So again, I don't understand why people would suggest he is advocating using the SDR as a global reserve currency. That is not consistent with his comments in the interviews I have heard.

When I listen to Jim Rickard analysis, what I hear is someone trying his best to forecast what he thinks is most likely to eventually happen (whether he agrees with it or not). I do the same thing here. As I have stated on this blog before, my opinions don't really matter. What matters is what actually happens. And people trying to become informed and prepare for whatever happens need to be ready for what is most likely to actually happen. 

I fully support the right of everyone to offer their opinions on these topics and their right to convince others that their view is correct. But I do think that readers here need to listen to various views and then compare opinions and forecasts they see to what actually happens (whether it agrees with their own point of view or not). It is important to make decisions based on the best information available.

I see no evidence that Jim Rickards is trying to mislead people. Rather, it seems to me he is trying to inform and prepare people for what he genuinely believes is going to happen. He may end up being right or wrong. But his track record so far is very strong which is why we cite his work here and will continue to do so as a credible alternative viewpoint. 

Update: Jim Rickards new interview provided an opportunity to explore this topic in more depth so I added a new Part II article which you can read here.

Jim Rickards: The Global Monetary Reset is Already Underway?

Jim Rickards has released a new article (featured here on Goldcore) that is now available in the public domain. In this article he suggests that the global monetary reset (GMR) that so many people have watched for is actually already underway now.  Of course we also watch for that here on this blog so this article gets our attention.

He supports this surprising observation by taking a deep dive into the world of cross rates between currencies including the exchange rate between gold and SDR's. Jim states that only recently has he thought about the significance of the exchange rate between gold and the SDR so this is a new take on things.

Below are a few excerpts from the article followed by a quote from Jim Rickards that he provided for readers here regarding the information in his new article.

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This may be the most important commentary I’ve ever written. Here’s why.

"For years, financial analysts have discussed what’s called the Global Monetary Reset, or GMR. Expectations of a GMR stem from the fact that monetary policies around the world are unstable and unsustainable.

There is no anchor to the system. There is no limit on money printing. There is no limit on debt creation.

Such a system grows exponentially based on the false belief that governments can spend as much as they want and central banks will pick up the tab or bail out the system as needed.

Politicians love the system because they can buy votes from their citizens. Central bankers love the system because of the power and prestige it brings them. Citizens love the system because they get handouts, bailouts, pumped-up asset values and other goodies seemingly for free."

What’s not to like?

The problem, of course, is that the system is unstable and unsustainable.  . . . ."

. . . . . .

"What if I told you the GMR already happened and no one noticed?"

Please click here to read the full article from Jim Rickards

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My added comments: Before I decided to feature this article, I reached out to Jim Rickards to make sure he was OK with featuring it on a public forum since this article first appeared in a newsletter to his paid subscribers. Jim gave permission to feature it and also provided an additional quote to include with this article for readers here:

"The evidence for a new gold standard pegged at SDR900 = one ounce of gold is compelling. However, this standard is new and informal and bears watching.  Further research is needed before reaching definitive conclusions. This standard itself could be abandoned by the sponsors if it proves unworkable in the future."  ---  Jim Rickards (7-3-2018)

The article is a pretty detailed deep dive into currency exchange rates that ends up pointing out that there is some evidence that gold has now been "pegged" to the SDR as follows:

"In short, world money has now been pegged to gold at a rate of SDR900 = 1 ounce of gold. It’s a new gold standard using the IMF’s world money."

Readers here will want to read this article to see how Jim supports this conclusion, keeping in mind the quote he provided us just above. This is a new take on things that Jim says only recently came to his attention based on some research he received from a source in Switzerland. 

If this pans out, it is a situation we will need to follow over time since Jim believes this could be a "clear short-run signal that China is betting on the SDR and gold, not the yuan or the dollar." 

Added notes: Jim mentions in the article that he will delve deeper into all this in a new book to be release this October. The title is -- Aftermath   (see info on that book here)

Jim has also released two new articles on what he sees as a building new crisis related to the US dollar and emerging markets.
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Additional added notes 7-8-18: This article by Jim has stirred up more reader interest than anything I have seen for some time (pro and con). There is clearly a lot of interest in the possibility that some kind of peg may in place between the SDR and gold and that China could be involved in that process. 

I have also heard from a variety of experts on other issues mentioned in Jim's original article. For example, one expert pointed out to me that for the IMF to issue trillions of new SDRs, an 85% vote of the IMF members would be required (with the US holding the veto power of a 16.52% vote). So we need to keep that point in mind. Another expert wondered how the SDR/gold peg is able to be maintained over a long period of time. Another reader forwarded me a link to this article which looks at Jim's article and asks if China may be pegging their own currency (the yuan) to gold?  

My view on all this reaction is that it is a good thing. Most people have never heard of an SDR or know anything at all about it. Yet, understanding it better is something I believe is important. Articles like this one from Jim attract interest from the average person like myself to learn more which is a good thing. I'll add that Jim Rickards has probably raised more awareness that the SDR exists and prompted more curiosity about it than anyone else who talks about these issues because he reaches such a large audience. I first learned about the SDR from his articles and interviews; as well as how to research it to learn more about it. He also answers any questions I may have by email without asking for anything in return. All that is much appreciated here.

The Most Popular Articles on SDR's Posted Here

This blog has been here for a little over a year and half now. The archive on the right side of the blog contains every article written here, but it can be difficult to find specific articles on specific topics. This post will provide a list of the most popular articles we have written here related to the SDR used at the IMF and possible future scenarios for its use as a global reserve currency. This will make it easier for new visitors to find these articles which have generated a lot of interest from readers here. These are among the most popular articles (based on reader visits) here on the blog.

Jim Rickards has predicted that when the next major global financial crisis comes, the only "clean balance sheet" left in the world to deal with the crisis will be at the IMF. He has predicted that the SDR will be promoted as a replacement global reserve currency to the US dollar (perhaps with some gold backing or maybe not).

If you do some research on the SDR, you learn pretty quickly that while it is a somewhat obscure unit of value only used at the IMF and central banks right now, it has always had the potential to become something beyond that. If Jim Rickards forecast pans out, we will see the SDR become more prominent for sure.

Even if we do not get another major crisis, I do believe that it is possible that in the future we could the see SDR become some kind of global reserve currency. It might come in stages over time in a step by step process rather than suddenly as in a crisis. It might follow after regional areas adopt regional currencies (the African Union - AU as an example patterned after the Euro). It might even eventually be a digital version that people outside the IMF/Central bank system could use. It's also possible that the public might reject the SDR if we get another crisis and people lose confidence in the present global financial institutions. Time will tell.

If the SDR is some day used for this purpose, the more we know about it the better. It does not matter if you think it would be a great idea or if you hate the idea. There is still value in having an understanding of what the SDR is now and how it could be used in the future. With that in mind, here are links to the most popular articles we have written on this topic. The research for these articles comes both from available publications and some good sources with expert knowledge on SDR's.

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February 2014 - What is an SDR?    and  August 2015 - Primer on SDR's

Some basic info about the SDR


June 2014 Update on KlickEx - An Asset Backed Virtual Currency?

This article is a little dated now, but still has some important information in it


July 2014 - Jim Rickards in depth on the IMF and the SDR

Jim Rickards explains his forecast in detail in this interview


December 2014 - IMF Reforms and SDR's - Why Should Anyone Care about them?

Some basic info and why people should care about it


May 2015 - Dan Popescu on the SDR, Gold, and China

Thought provoking article from Dan Popescu


June 2015 - OMFIF - Chinese SDR Inclusion Could Trigger Global Assets Shift

A reader here sent me the link to this article


****June 2015 - Dr. Warren Coats (former IMF) - A Global Currency for a Global Economy ****

Examines Dr. Coats Proposal for a "Real SDR"


**** July 2015 - Converting the SDR into Something People Can Use ****

Talks about how the SDR might some day be used outside the IMF


**** August 2015 - Roadblocks to the SDR Becoming a Global Currency ****

Looks at the obstacles the SDR has to overcome to become a global currency


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If you have limited time, I would recommend the last three articles with the **** as the best ones to read. Right now, I don't know of anything that would suggest the SDR is about to become a global reserve currency any time soon. However, over time, I do think it becomes more likely that this will be possible. It may even be possible some day for a digital version of the SDR that everyone could use in daily life to emerge. Time will tell.


Added note: I will add this list on the right hand side of the blog as a new page so it will be easier to find these articles for anyone interested in this topic. Over time we can watch to see how the idea of the SDR as a global reserve currency fares and I will add new articles as new information becomes available.

Do the BRICS want out of Western Led Global Institutions (UN and IMF)? Part I

One of the most passionate debates you see when you follow what we do here on the blog is the question of what the true goals are for China and the BRICS nations. One side of the debate sees all the apparent conflict between Russia, China, and the US and concludes that the BRICS/China plan is to abandon the IMF and overthrow the US dollar. Some even say they are working on a new gold backed yuan currency that will replace the US dollar. They base this on the massive gold buying by China.

The other side takes the view that BRICS/China have no plans at all to abandon the IMF or  replace the US dollar. They see China supporting the SDR at the IMF as an alternative to the US dollar in the future. They see the Chinese buying gold too, but say it's just to re-balance world gold reserves to get China caught up with the rest of the world.

Meanwhile, 99% of the public doesn't even know the debate is taking place or why they should care about it. Let's explore it.

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The one thing both sides can agree on that is pretty easy to document is that China/BRICS do want to an end to the US dollar as the only global reserve currency. These article links provide just a sample of the overwhelming evidence that this is a goal for China/BRICS.

China aiming for de-Americanized World - UK Telegraph

China's Bid for Global Yuan gains Momentum - Wall Street Journal

China: Turning Away from the Dollar - Financial Times

It's easy to establish that China/BRICS don't like the status quo and want things to change. The real debate is how, and over what time frame, they want things to change. The Economist even held an online debate over this question. 

Jim Rickards has proposed that the SDR used at the IMF is more likely to replace the US dollar as the sole global reserve currency. He does not think that China/BRICS want to use the Yuan to replace the dollar as many are proposing. He explained that view in this interview back in 2013 as follows:

"Rickards echoed this.  China is not buying gold to create a new gold standard; rather it is aiming to make the Yuan more attractive, with the end result of being included in a basket of currencies, referred to as the Special Drawing Rate (SDR). He added that there is a move to make the SDR the new global reserve currency."

“Everybody knows that the U.S. dollar’s days are numbered but there is really no currency to take its place except for the SDR,” he said. “What the world is trying to do is move to the SDR and China is fine with that.”

This view held by Jim Rickards stirs up passionate disagreement from those who do not see the SDR at the IMF as playing a major role in the future. You can see that on full display in this article. Here is a quote from this article.


"I have always believed that China and Russia would never accept an IMF SDR as the global reserve currency, even if the U.S. and EU were willing to put those two respective currencies in the basket.  The biggest clue for me has been the rate at which both China and Russia are accumulating gold in their currency reserve accounts and working to eliminate the use of the dollar in their trade agreements."


Clearly, those who are interested in this debate have some strong feelings about it. Just for the record, I don't agree with the personal attack on Jim Rickards in this second article that disagrees with his view on the future of the SDR. I have found Jim Rickards to be quite genuine in email replies to any questions I may ask. I think he provides his honest personal opinion when he discusses these issues, and he is always very courteous as well. In addition, he supports his views with solid documentation that you can verify independently.

In an article I wrote published on January 1st of this year, I listed four possible future scenarios for how the monetary system could change. One of those four was this one:

"A Global Split Between East and West Leading to Competitive Based Change -  In this scenario, the BRICS nations are unable to get what they want within the existing  global financial institutions led by the West (like the IMF and World Bank). They eventually become frustrated and exit those institutions completely and work on building up their new BRICS Bank and Reserve Fund to directly compete around the world with the Western led institutions."

I listed this scenario as possible, but also added this comment:  

"I think this scenario is unlikely, but is possible if political stalement endures for a long time  in the US."

The first scenario I listed was this one:

"Sudden Global Financial Crisis Leading to Rapid System Change – This is basically the forecast of Jim Rickards. It says that we will experience another major crisis sometime soon (say in the next 2-3 years) because the present system is unstable. The US Fed will be unable to deal with this crisis because it will be too big and they have already used up their balance sheet. The IMF would intervene as global lender of last resort and also institute the SDR as a new form of global money.  Jim Rickards explains this view in detail in his book “The Death of Money”

So both sides of this debate were represented in my list of potential scenarios. I also listed another variant of the "Sudden Financial Global Crisis" scenario just above. It is one where the world still ends up using the SDR. However, the process unfolds in a gradual, more controlled manner over the next several years (not under crisis conditions).

So, which side of this debate is right?  What are the real goals for China/BRICS? 

I don't know. That is why I am following it here on the blog. To see how it turns out. And it is important to all of us how it turns out. A change away from the US dollar as sole global reserve currency will impact everyone all over the world. The re-introduction of an actual gold backed currency (the Yuan or the SDR) would have an enormous impact.

Right now, it seems like China/BRICS do not plan to leave the IMF or replace the US dollar with a gold backed Yuan currency. The evidence I see in doing research for articles on the blog indicates that China/BRICS real goals are to 1) stay inside the IMF, 2) work to get the Yuan included in the SDR basket, and 3) eventually push for the SDR to replace the US dollar as the global reserve currency. This does agree with what Jim Rickards is predicting as I understand his forecast. 

This has been the consistent position of China for many years now (see list of links below for some documentation). I do not find any articles quoting Chinese officials saying they intend to leave the IMF or setup a gold backed Yuan currency on their own.

I always reserve the right to change my mind if the facts change. If China and the BRICS are really planning to abandon the IMF and set up a new gold backed currency, that will become very evident over time and we will cover that here. But for now, the evidence we see points in the other direction. You can review some of that evidence just below. 

Here is Part II of this article

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Evidence that China wants to stay in the IMF and use the SDR in the future:

Reuters - China wants Yuan in SDR in 2015

"Chinese currency authorities are pushing for the yuan to be included in the SDR's currency basket, and are aiming for its inclusion when the basket composition comes up for review again in 2015. . . "


ABC News - China calls for new global currency

"To better insulate countries from the ills of one country or one currency, Zhou (China Central Bank Head) said the IMF should create a "reserve currency" based on shares in the body held by its 185 member nations, known as special drawing rights, or SDRs."

USA Today - China Currency Push

"China is bidding to enter the heart of global finance by establishing its currency, the renminbi, as part of an ubiquitous monetary unit (the SDR) used in official transactions around the world."

China Daily - China eyes SDR as global currency

"China's central bank chief on Monday proposed a sweeping overhaul of the global monetary system, outlining how the dollar could eventually be replaced as the world's main reserve currency by the Special Drawing Right (SDR)."


China Daily - Replace Dollar with Super Currency

Bloomberg - China's Zhou - Some Countries now using the Yuan as reserves

"The inclusion of yuan in the currency basket of Special Drawing Rights, or SDR, the IMF’s unit of account, will happen when conditions are right, PBOC deputy governor Yi Gang said yesterday in Washington. “A canal is formed when water comes,” Yi said, using a Chinese idiom. The basket currently is made up of the dollar, euro, pound and yen."

For those who like to dig deeper, use these links:

US Treasury - US-China Joint Fact sheet

"The United States and China commit to continue strengthening their cooperation in the IMF and G-20, improving the IMF’s quota and governance structure, ensuring the completion of the 15^th general quota review, reaching a final agreement on a new quota formula, and further enhancing the voice of emerging markets and developing countries.  The United States commits to complete the domestic approval of the 2010 IMF quota and governance reforms as soon as possible.  The two sides reaffirm the importance of maintaining a strong and adequately resourced IMF."

CIGI paper: China's Goals in the G20

"Furthermore, China is actually not seeking to completely overhaul the international financial system, but rather working toward greater integration and becoming an equal member. As Pang (2013) argues, “China’s strong interest in raising the quotas at the IMF and putting the RMB into the SDR basket show that China is not seeking to create an alternative in global governance, but embracing strongly the existing regimes in global governance.”


The author of the CIGI paper noted just above is Alex He. Here is some info on his background:

Xingqiang (“Alex”) He is a CIGI visiting scholar. Alex is a research fellow and associate professor at the Institute of American Studies at the Chinese Academy of Social Sciences (CASS).  Alex has co-authored the book A History of ChinaU.S. Relations and published dozens of academic papers and book chapters both in Chinese and English. 

He also periodically writes reviews and commentaries for some of China’s mainstream magazines and newspapers on international affairs. Alex has a Ph.D. in international politics from the Graduate School of CASS. Before beginning his Ph.D., he taught international relations at Yuxi Teachers College in Yunnan Province, China.

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Additional worthwhile reading on this topic on the Bretton Woods web site: Yuan for all

Most Asked Questions Right Now Including - Is this the Start of the Crisis?

2016 has started off with a lot of turbulence and market volatility. When this starts happening its natural to wonder if we seeing the start of something significant or not (like the 2008 financial crisis). 

Because I read a lot information doing research for this blog, one thing I do see is a variety of views on questions like this. In this post I will try to provide readers an update on things using a Q&A format. My answers are based on the combined information from all the sources I read plus email input I get from very good sources (some very well connected). 

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Q: Is this market volatility the start of the major financial crisis many are predicting to be worse than 2008?

A: I don't know. I don't think we will be able to tell that at the early stages. Here are some comments I have seen doing research for blog articles:

Jim Rickards - Jim is on record predicting that we will get another major crisis worse than 2008. His book 'The Death of Money' details his prediction. Recently though, he did an interview in which he stated that what we are seeing right now is not the start of the crisis he predicts. He said that crisis is still years away. On the other hand, Jim has always said in previous interviews that even he will not be able to provide the timing for the crisis (no one knows which snowflake will trigger an avalanche). So he acknowledges that he could be surprised himself at the timing.

Willem Middelkoop  - He predicts we  will see 'The Big Reset' bringing in major monetary system change after a crisis. Very similar to Jim Rickards view. Has a best selling book on this topic. I have seen no specific prediction so far from him that this is start of a major crisis, but he will not be surprised when we get one.

Nomi Prins - Nomi is very much like Jim Rickards. She sees a major crisis coming, but has not indicated whether what we are seeing now is the start of one. Like Jim, she does not rule out the possibility of one at virtually any time. Nomi is also joining Jim Rickards as a writer at Strategic Intelligence. Just out, a new interview with Greg Hunter on this question.

Credible Sources Inside the System - these sources prefer to remain anonymous which I always honor. I have gotten nothing from these sources indicating they feel that a major crisis event is imminent. In a recent contact with one of these sources, I got no indication that there is a feeling that a major crisis is imminent.

Jim Sinclair/Bill Holter - Jim and Bill are both on record as saying they do expect a major crisis to unfold very soon. They believe that there are already problems behind the scenes with derivatives etc. that will surface soon. They both advise people to prepare for crisis conditions now. Jim added a followup article on preparedness here.

IMF and BIS - Both these organizations have issued multiple warnings over the past couple of years about the potential for crisis conditions. However, neither organization is stating in public that they believe the current market volatility is the start of such a crisis. The IMF for example, is just lowering growth forecasts, not warning of a major crisis. Of course, it's their job to not panic the public so it's unlikely they would announce a crisis ahead of time even if they knew one was starting up. Former IMF Peter Doyle has told us not to expect an early warning. Former BIS William White says a debt storm is coming. Current IMF Zhu Min says "we may have to act fast". These last two linked articles appeared after I wrote the above paragraph, so maybe they are alerting us this time? Zhu Min seems to walk back his comments here in this interview (no meltdown).That's how dynamic and fluid things are right now.

Various Analysts and Precious Metals Advocates Featured on Alternative Media - Here we are talking about people like James Turk, Egon Von Greyerz, Bill Fleckenstein, Peter Schiff, Michael Pento, Andrew Maguire, etc. (some of these also appear on mainstream financial media) - This group is in agreement that a major crisis is coming and are inclined to think it will be sooner rather than later like Jim Sinclair and Bill Holter. All of this group encourages people to acquire an emergency fund that includes precious metals. Precious metals advocates will probably be interested in this new book coming in April from Jim Rickards.

Mainstream Financial Media - No mainstream financial media I have seen are saying this is the start of a major crisis worse than 2008 at this point.  They are mostly just focused on covering the day to day market volatility. It is unlikely mainstream media would issue an early alert on a crisis since they tend to work with the financial institutions to keep the public calm. I cannot ever recall in my lifetime a mainstream media warning taking place before an actual crisis arose so it's unlikely the next time will be different. I did see this on CNBC raising the issue of a possible "crack in the system" due to the rising US dollar (and falling currencies elsehere) that we covered here in recent articles from Jim Rickards and OMFIF.

Dr. Warren Coats (former IMF) - I have seen no specific prediction by Dr. Coats on this, but he does reference the prediction of a major crisis worse than 2008 made by Jim Rickards in his Real SDR proposal article. He says it could be a trigger that leads to a major reform of the global monetary system. In an interview for this blog, Dr. Coats said if the US does not address it's debt problems, it will lead to loss of status for the US dollar as global reserve currency at some point in the future. He did not specify a time frame for this to happen however. Dr. Coats believes that both the US and the rest of the world could benefit from a new global reserve currency and works towards that goal as he stated in the interview here on the blog.


Q: If we get another major crisis, will that lead to a new monetary system or a major "reset" of the existing monetary system?

A: My opinion (for what its worth) is that it is likely we will see major monetary system changes if we get another crisis worse than 2008. Virtually everyone listed above (except perhaps the mainstream financial media who never talks about this issue) seems to agree on this. The IMF and the BIS don't comment on this in public, but my belief based on what I feel is solid information is that they do have the tools in place to move forward with major monetary system change (see below). I don't think they would spend time and effort working on the tools unless they were prepared to use them if need be. 

You can just take Jim Rickards and Dr. Warren Coats public writings on this topic to get a reasonable idea of how the powers that be might want to change the system. The precious metals advocates and central bank skeptics want to see a new monetary system where gold comes back into the system one way or another. While that is not what I would expect to see as the first choice of those in power, I do think they would keep that tool in their back pocket and use it if they had to in order to restore public confidence in the system. Where China would come down on this issue is an interesting and open question. China seems supportive of the SDR as a global reserve currency, but also is piling up gold and some think tanks in China do discuss using gold in a global currency system. A debate rages as to whether China (and Russia) wants a gold backed currency in the future or not. Both countries are adding significant gold reserves.

Q: What if we do not get another major crisis worse than 2008?

A: I expect the kind of changes that Dr. Coats and Jim Rickards talk about (SDR as the new global reserve currency) to evolve gradually over time, perhaps on a regional basis first (Africa, Asia, etc), then on a global basis. If there is no crisis, the public is not likely to be interested in major radical change, so I would expect the changes to take place slowly so the public really does not notice each individual change that much. It could take several years to several decades to unfold if there is no major crisis.

Q: What role will gold play in all this?

A: Gold will play an important role no matter what happens. Even though we have a fiat based system (or soft peg as Dr. Coats prefers to say) and might still have one after a major crisis, gold will still be the underlying "asset of last resort" held by the central banks, IMF, etc. Whether they use gold in some formal way to back a currency or not, it will still be a key reserve asset. I don't rule out gold returning to the system in some way either. Dr. Coats Real SDR proposal is based on valuing the SDR (valuing it, not backing it) on a basket of commodities and real goods rather than the currency basket used now to value it. Gold could certainly be in that basket. China might push for gold backing of some kind (perhaps in an indirect way).

I will add that none of the sources I talk to inside the system hate gold. They don't believe in a gold standard to back the currency directly, but they do see gold as a key reserve asset. I have no doubt that many working inside the system own some gold themselves. Individuals who can afford it should have some in their portfolio in my opinion. Silver can work for most anyone as an alternative as part of an emergency fund.

Q: What tools exist to move forward with a new monetary system after a crisis?

A: This is an important question. I believe that many of those outside the system do not realize that there are more tools left to deal with a crisis than they think. It is assumed that once the US Fed loses credibility (which many think will happen) the game is over and a collapse will ensue. Based on credible input I have gotten, I believe there are more tools left. Here is my bullet point list of tools I believe do exist and could be used by the existing financial institutions (IMF,BIS, etc):

- transition away from the US dollar system run by the US Fed and Treasury and into a new global reserve currency system based on the SDR with the IMF taking over in the role the US Fed has had as lender of last resort (see Jim Rickards and Dr. Coats for details).

- back this new SDR reserve currency directly or indirectly with an index of real goods (basket of goods/commodities). This could be done if a pure fiat SDR did not restore confidence. By pure fiat I mean backed with no tangible assets and valued using the current fiat currency basket.

-back the new SDR reserve currency with hard real assets (gold, oil, Tier 1 assets, etc) if confidence was still not restored. Technology to do this does exist.

- in conjunction with a new reserve currency, hold a global conference to deal with all the unsustainable sovereign debt in one shot. Write off what cannot be salvaged and restructure sovereign debt that can be salvaged. This could also happen prior to the start of a new global reserve currency. (step 1 - resolve debt, step 2 - setup new currency system). The IMF has studied this (debt resolution) for a long time so we can assume a plan could be put in place if needed. So called "bail-ins" could certainly be used as well. This is basically 'The Big Reset' people talk about.

-utilize modern technology to make the new reserve currency available to everyone (not just IMF and World Bank members and current private SDR holders). Allow the currency to be used for legal tender in daily transactions, currency exchange with national currencies, and as a store of value. Make it available on mobile phones and able to conduct transactions around the world in real time for very low or no fees. This is something that might happen later rather than sooner. It would take some initial less radical steps first and how mobile money might connect into the system is an ongoing discussion (see pp 35-37).

- provide both asset backing and institutional backing (BIS,IMF) to the new reserve currency to establish it as the most stable and secure currency available in the world (do whatever it takes to do this). Example: every SDR account up to $xx,xxx is guaranteed like the FDIC does now in the US for whatever amount is needed to establish confidence.

-allow the new reserve currency to co-exist with national currencies, but back it (see above) such that it is the premier and most stable currency that all other currencies peg to. Don't force people to use it, just make it so desirable they will prefer it over all other currencies (if you build it, they will come approach).

Q: What if all those tools still fail to restore confidence in a new monetary system (don't work) or the tools are not used?

A: This is a legitimate question. The big  key to the answer to this question is another question:  Who will the public trust if the current system fails?

It is possible that if the current US dollar based fiat system fails that the general public simply will lose all trust in the existing institutions that would be involved in implementing the above list of tools. If that does happen, all bets are off and I have no idea what would happen. The possibilities range from chaos and anarchy to police state/martial law tactics by governments to a return to a more decentralized and regional set of monetary systems around the world (even barter in some places). We could get a combination of all of the above in various places around the world.

At some point a new system would develop to transact business globally of course. What would happen during the transition period is an unknown to me. The most likely guess is that the transition would be disorderly (former BIS William White just used this term recently) and then eventually stabilize one way or another.


Conclusion: 

These are the most important questions I know of at this point in time for most people. The answers are based on the best information I have from what I think are highly credible sources. With the future quite uncertain, the best suggestion I can offer for the average person like myself is to stay informed, stay prepared, and don't be shocked at whatever does happen. Have a backup plan in mind in case a worst case scenario unfolds, but don't live every day in fear of a worst case scenario.
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I will have a blog article featuring a brand new article just written by Dr. Warren Coats. He calls for some groundbreaking action by the new AIIB that would certainly impact monetary system change. Click here to see it.

On top of this, we were able to get an exclusive Q&A style interview with Dr. Coats where he answers some questions people have about a global reserve currency system.


Also, I will repost the article above a couple of times in the next two-three weeks and add any updated information I might get. With markets this volatile, things can change very quickly.

Repost: Most Asked Questions by Readers Including - Is this the Start of the Crisis?

(Below is a re-post of a previous article with some updated information and links)

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Because I read a lot information doing research for this blog, one thing I do see is a variety of views on questions like this. In this post I will try to provide readers an update on things using a Q&A format. My answers are based on the combined information from all the sources I read plus email input I get from very good sources (some very well connected). I will re-post this article in the future with updated information and links as we follow events this spring.

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Q: Is this market volatility the start of the major financial crisis many are predicting to be worse than 2008?

A: I don't know. I don't think we will be able to tell that at the early stages. Here are some comments I have seen doing research for blog articles:

Jim Rickards - Jim is on record predicting that we will get another major crisis worse than 2008. His book 'The Death of Money' details his prediction. Recently though, he did an interview in which he stated that what we are seeing right now is not the start of the crisis he predicts. He said that crisis is still years away. On the other hand, Jim has always said in previous interviews that even he will not be able to provide the timing for the crisis (no one knows which snowflake will trigger an avalanche). So he acknowledges that he could be surprised himself at the timing. In a comment on his twitter feed, Jim says "the reset story has a long way to run" which implies he thinks it will play out over a longer time period as I interpret that comment.

Willem Middelkoop  - He predicts we  will see 'The Big Reset' bringing in major monetary system change after a crisis. Very similar to Jim Rickards view. Has a best selling book on this topic. I have seen no specific prediction so far from him that this is start of a major crisis, but he will not be surprised when we get one. In this recent TV interview he lays out a possible time frame for the changes he sees coming.

Nomi Prins - Nomi is very much like Jim Rickards. She sees a major crisis coming, but has not indicated whether what we are seeing now is the start of one. Like Jim, she does not rule out the possibility of one at virtually any time. Nomi is also joining Jim Rickards as a writer at Strategic Intelligence. Just out, a new interview with Greg Hunter on this question.

Credible Sources Inside the System - these sources prefer to remain anonymous which I always honor. I have gotten nothing from these sources indicating they feel that a major crisis event is imminent. In a recent contact with one of these sources, I got no indication that there is a feeling that a major crisis is imminent.

Jim Sinclair/Bill Holter - Jim and Bill are both on record as saying they do expect a major crisis to unfold very soon. They believe that there are already problems behind the scenes with derivatives etc. that will surface soon. They both advise people to prepare for crisis conditions now. Jim added a followup article on preparedness here. In this new article Bill Holter says the crisis is already underway and will be an ongoing event.

IMF and BIS - Both these organizations have issued multiple warnings over the past couple of years about the potential for crisis conditions. However, neither organization is stating in public that they believe the current market volatility is the start of such a crisis. The IMF for example, is just lowering growth forecasts, not warning of a major crisis. Of course, it's their job to not panic the public so it's unlikely they would announce a crisis ahead of time even if they knew one was starting up. Former IMF Peter Doyle has told us not to expect an early warning. This article inThe Economist does not inspire confidence in the IMF's ability to forecast a contraction. Former BIS William White says a debt storm is coming. Current IMF Zhu Min says "we may have to act fast". These last two linked articles appeared after I wrote the above paragraph, so maybe they are alerting us this time? Zhu Min seems to walk back his comments here in this interview (no meltdown).

Various Analysts and Precious Metals Advocates Featured on Alternative Media - Here we are talking about people like James Turk, Egon Von Greyerz, Bill Fleckenstein, Peter Schiff, Michael Pento, Andrew Maguire, etc. (some of these also appear on mainstream financial media) - This group is in agreement that a major crisis is coming and are inclined to think it will be sooner rather than later like Jim Sinclair and Bill Holter. All of this group encourages people to acquire an emergency fund that includes precious metals. Precious metals advocates will probably be interested in this new book coming in April from Jim Rickards.

Mainstream Financial Media - No mainstream financial media I have seen are saying this is the start of a major crisis worse than 2008 at this point.  They are mostly just focused on covering the day to day market volatility. It is unlikely mainstream media would issue an early alert on a crisis since they tend to work with the financial institutions to keep the public calm. I cannot ever recall in my lifetime a mainstream media warning taking place before an actual crisis arose so it's unlikely the next time will be different. I did see this on CNBC raising the issue of a possible "crack in the system" due to the rising US dollar (and falling currencies elsehere) that we covered here in recent articles from Jim Rickards and OMFIF.

Dr. Warren Coats (former IMF) - I have seen no specific prediction by Dr. Coats on this, but he does reference the prediction of a major crisis worse than 2008 made by Jim Rickards in his Real SDR proposal article. He says it could be a trigger that leads to a major reform of the global monetary system. In an interview for this blog, Dr. Coats said if the US does not address it's debt problems, it will lead to loss of status for the US dollar as global reserve currency at some point in the future. He did not specify a time frame for this to happen however. Dr. Coats believes that both the US and the rest of the world could benefit from a new global reserve currency and works towards that goal as he stated in the interview here on the blog.

Q: If we get another major crisis, will that lead to a new monetary system or a major "reset" of the existing monetary system?

A: My opinion (for what its worth) is that it is likely we will see major monetary system changes if we get another crisis worse than 2008. Virtually everyone listed above (except perhaps the mainstream financial media who never talks about this issue) seems to agree on this. The IMF and the BIS don't comment on this in public, but my belief based on what I feel is solid information is that they do have the tools in place to move forward with major monetary system change (see below). I don't think they would spend time and effort working on the tools unless they were prepared to use them if need be. 

You can just take Jim Rickards and Dr. Warren Coats public writings on this topic to get a reasonable idea of how the powers that be might want to change the system. The precious metals advocates and central bank skeptics want to see a new monetary system where gold comes back into the system one way or another. While that is not what I would expect to see as the first choice of those in power, I do think they would keep that tool in their back pocket and use it if they had to in order to restore public confidence in the system. Where China would come down on this issue is an interesting and open question. China seems supportive of the SDR as a global reserve currency, but also is piling up gold and some think tanks in China do discuss using gold in a global currency system. A debate rages as to whether China (and Russia) wants a gold backed currency in the future or not. Both countries are adding significant gold reserves.

Q: What if we do not get another major crisis worse than 2008?

A: I expect the kind of changes that Dr. Coats and Jim Rickards talk about (SDR as the new global reserve currency) to evolve gradually over time, perhaps on a regional basis first (Africa, Asia, etc), then on a global basis. If there is no crisis, the public is not likely to be interested in major radical change, so I would expect the changes to take place slowly so the public really does not notice each individual change that much. It could take several years to several decades to unfold if there is no major crisis.

Q: What role will gold play in all this?

A: Gold will play an important role no matter what happens. Even though we have a fiat based system (or soft peg as Dr. Coats prefers to say) and might still have one after a major crisis, gold will still be the underlying "asset of last resort" held by the central banks, IMF, etc. Whether they use gold in some formal way to back a currency or not, it will still be a key reserve asset. I don't rule out gold returning to the system in some way either. Dr. Coats Real SDR proposal is based on valuing the SDR (valuing it, not backing it) on a basket of commodities and real goods rather than the currency basket used now to value it. Gold could certainly be in that basket. China might push for gold backing of some kind (perhaps in an indirect way).

I will add that none of the sources I talk to inside the system hate gold. They don't believe in a gold standard to back the currency directly, but they do see gold as a key reserve asset. I have no doubt that many working inside the system own some gold themselves. Individuals who can afford it should have some in their portfolio in my opinion. Silver can work for most anyone as an alternative as part of an emergency fund.

Q: What tools exist to move forward with a new monetary system after a crisis?

A: This is an important question. I believe that many of those outside the system do not realize that there are more tools left to deal with a crisis than they think. It is assumed that once the US Fed loses credibility (which many think will happen) the game is over and a collapse will ensue. Based on credible input I have gotten, I believe there are more tools left. Here is my bullet point list of tools I believe do exist and could be used by the existing financial institutions (IMF,BIS, etc):

- transition away from the US dollar system run by the US Fed and Treasury and into a new global reserve currency system based on the SDR with the IMF taking over in the role the US Fed has had as lender of last resort (see Jim Rickards and Dr. Coats for details).

- back this new SDR reserve currency directly or indirectly with an index of real goods (basket of goods/commodities). This could be done if a pure fiat SDR did not restore confidence. By pure fiat I mean backed with no tangible assets and valued using the current fiat currency basket.

-back the new SDR reserve currency with hard real assets (gold, oil, Tier 1 assets, etc) if confidence was still not restored. Technology to do this does exist.

- in conjunction with a new reserve currency, hold a global conference to deal with all the unsustainable sovereign debt in one shot. Write off what cannot be salvaged and restructure sovereign debt that can be salvaged. This could also happen prior to the start of a new global reserve currency. (step 1 - resolve debt, step 2 - setup new currency system). The IMF has studied this (debt resolution) for a long time so we can assume a plan could be put in place if needed. So called "bail-ins" could certainly be used as well. This is basically 'The Big Reset' people talk about.

-utilize modern technology to make the new reserve currency available to everyone (not just IMF and World Bank members and current private SDR holders). Allow the currency to be used for legal tender in daily transactions, currency exchange with national currencies, and as a store of value. Make it available on mobile phones and able to conduct transactions around the world in real time for very low or no fees. This is something that might happen later rather than sooner. It would take some initial less radical steps first and how mobile money might connect into the system is an ongoing discussion (see pp 35-37).

- provide both asset backing and institutional backing (BIS,IMF) to the new reserve currency to establish it as the most stable and secure currency available in the world (do whatever it takes to do this). Example: every SDR account up to $xx,xxx is guaranteed like the FDIC does now in the US for whatever amount is needed to establish confidence.

-allow the new reserve currency to co-exist with national currencies, but back it (see above) such that it is the premier and most stable currency that all other currencies peg to. Don't force people to use it, just make it so desirable they will prefer it over all other currencies (if you build it, they will come approach).

Q: What if all those tools still fail to restore confidence in a new monetary system (don't work) or the tools are not used?

A: This is a legitimate question. The big  key to the answer to this question is another question:  Who will the public trust if the current system fails?

It is possible that if the current US dollar based fiat system fails that the general public simply will lose all trust in the existing institutions that would be involved in implementing the above list of tools. If that does happen, all bets are off and I have no idea what would happen. The possibilities range from chaos and anarchy to police state/martial law tactics by governments to a return to a more decentralized and regional set of monetary systems around the world (even barter in some places). We could get a combination of all of the above in various places around the world.

At some point a new system would develop to transact business globally of course. What would happen during the transition period is an unknown to me. The most likely guess is that the transition would be disorderly (former BIS William White just used this term recently) and then eventually stabilize one way or another.

Q: What impact will the 2016 US Elections have on major monetary system change?

A: Most likely very little. The first results from Iowa just show how splintered the electorate is with no candidate able to generate a big majority of support that would be needed to see any kind of major changes. Actually, the reverse is possible. It's more likely that a major economic crisis in 2016 would impact the election results. A crisis probably favors the Republican candidate while no crisis could favor the Democrat. 

Conclusion: 

These are the most important questions I know of at this point in time for most people. The answers are based on the best information I have from what I think are highly credible sources. With the future quite uncertain, the best suggestion I can offer for the average person like myself is to stay informed, stay prepared, and don't be shocked at whatever does happen. Have a backup plan in mind in case a worst case scenario unfolds, but don't live every day in fear of a worst case scenario.

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