Replacing The U.S. Dollar with an SDR Note “Remains the Overriding Vision”
The Epoch Times recently published their follow up to the G20 Meeting held in early September in China. It is interesting to note how their reporting dramatically differs from the, typical, Western media reporting. Had a person followed only Western media outlets for reporting on the G20 meeting one would have come away with the sense the only thing accomplished was Obama and Russian President Putin facing off in a stare down that looked like two boxers about to go toe-to-toe.
In an article The Daily Coin published we clearly stated the meetings that would take place on the “sidelines” would be where the real meetings would determine the next step(s) in the, currently, unfolding monetary shift. The Federal Reserve Note, U.S. dollar, is now on the chopping block of history. While the axe has not been lowered it is certainly being sharpened. China has made it clear there is going to be a change and “the United States had to go along with the Chinese because they hold a large portion of the U.S. government debt.” I have heard it said before – the debtor is the slave to the creditor and the master determines the fate of slave.
“Behind the scenes, the system preparations have been made to the international monetary system which will allow us to introduce the SDR as one of the world’s reserve currencies, as a world reserve currency which could become and replace the dollar.”
He [Willem Middlekoop] thinks the United States had to go along with the Chinese because they hold a large portion of the U.S. government debt. This does not mean, however, that the dollar will become meaningless in the near future, as it is still the most important currency within the SDR basket.
“Adding the Chinese yuan to the SDR is a great way for the United States to stay in control. The U.S. dollar is still more than 42 percent of the SDR, even after Oct 1. So this is a solution which is acceptable for both the Chinese and the Americans. Even Putin can agree with this. By upgrading the SDR the United States will become less important, but it will still be the leading currency. Both Russia and China understand the need for the dollar for the foreseeable future.” Source
Small changes along the way make for one big change at the end of the line. The people that believe the Federal Reserve Note, U.S. dollar, is going to crash and burn overnight are missing the point of these communiques’ from the IMF, BIS and World Bank. What is happening right now are the people that are making policy changes, putting into place the mechanisms required to convert a global monetary system from one system to the next. China and Russia have been doing exactly this for the past several years. The AIIB was set up for the specific purpose of shifting accounts out of the BIS, IMF or World Bank or all three, into a new global banking system. The alternative to the, current, SWIFT system that has been built by both China and Russia, independently, represent other tools necessary to make this shift. There are a great many more tools necessary to making this type of global change. China and Russia have both been, independently, developing other banking systems, and monetary tools, necessary for such a change. There is still much work to be done.
Small changes are hidden in plain sight. In its Articles of Agreement, the IMF states each member is obligated to “making the special drawing right the principal reserve asset in the international monetary system.”
Within the context of these small changes, however, the Chinese won a symbolic victory to have one of the U.S. controlled global institutions, the World Bank, issue a bond denominated in SDR in China.
“It’s more symbolic but highly significant. It shows that the U.S.-centered institutions, the IMF and the World Bank, really accepted the Chinese demand,” said Middelkoop. Source
The new M-SDR, in conjunction with the two other SDR’s O-SDR and R-SDR, are in place and ready to fill the ledger sheets around the world. This is not going to happen overnight, next week or next year – as of today this is not the plan. The plan is to continually drain the current system and propagate the new system at the same time. This has the potential to create problems as these two systems move in opposite directions. Gold could be a “counterweight” to smooth out the transition and create a more level currency as one system grows and the other recedes. I did not say gold would be part of the system nor did I say gold is going to play a role, at all, in this transition.
According to the former head of the IMF’s SDR division Dr. Warren Coats, China does plan on completely replacing the U.S. dollar in the long term and that private bond issues like the one from the World Bank are necessary to build capital markets and pricing mechanisms for the SDR.
“That goal to replace the dollar and euro and other currencies as international reserves with the SDR remains the overriding vision that China has in mind,” he said. “Any serious undertaking to promote the SDR as an attractive, viable international reserve asset requires an extensive private use of SDRs, like the World Bank bond and there needs to be lots more of that.”
He suggests for the SDR to take over from the dollar, major commodities like oil also need to be priced in SDR, and the banking system needs to create deposits and loans in SDR as well. Source
Furthermore, gold is not currently allowed to play any role in the SDR Basket of Currencies.
Gold could “provide a counterweight to the impact of the depreciation/appreciation of the dollar (and other currencies) since the gold price tends to be inversely related to the dollar,” she writes in a 2011 paper.
However, although the IMF holds 2,814 metric tons of gold reserves, it won’t be part of the SDR anytime soon according to Dr. Coats: “This would not be allowed under the current articles. They prohibit gold from being part of the SDR.” Source
So, for those that believe gold is going to be part of the new system, which it very well could be, please re-read the couple of statements to understand this is far from over. Gold could be part of the new system, however, as of today, it is not.