September Foreshadowings

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Update on IMF Reforms & Congressional Delays

By JC Collins

With so much financial news being fed to us with a fire hose, let’s take a few minutes to recap the status of the 2010 IMF Quota and Governance Reforms, and the deadlines which have been established.

The large number of substantial events which are scheduled for the month of September has some what overshadowed the IMF deadline on reforms, which has been set at September 15th. I will not list these events, as I’m sure most of you have already thoroughly researched and been made aware.

The International Monetary Fund has given the United States until Sept 15th to act on the legislation supporting the 2010 reforms. If action isn’t taken by the US Congress before that date, the mandate it to have an interim solution on reforms established by Sept 30th.

Rise of the Regional Currency Units

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By JC Collins

Some of the challenges which are presented with using the SDR as the international reserve asset can be minimized, and perhaps even eliminated, but staggering the structure of the multilateral financial architecture.

One of the main challenges with using the SDR is how to capture and account for, both economically and socially, the wide diversity of culture and politics which span the globe. Lumping everything and anything into one-size-fits-all composite will inevitably lead to bureaucratic bottlenecks and tense geopolitical situations which are not easily solved.

The ability of the International Monetary Fund to function as a central bank of the world with the responsibility of setting SDR reserve requirements and exchange rate arrangements is fraught with national and regional challenges for participating members.

US Dollar Exchange Rate Anchors

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By JC Collins

With so much discussion taking place about the global monetary imbalances and ending of USD exchange rate pegs, let’s spend a few minutes to take a closer look and determine how much of the info being presented is simply dramatic headlines, and how much is factual information.

Here on POM I’ve always attempted to present information in a manner that is non-inflammatory with less-than-dramatic headlines. I’ve gotten better at this over time. It has been my contention that the information itself is extremely telling of the patterns and trends that are unfolding in the international monetary framework. Patterns and trends based on structural changes.

So far the information presented has proven to be fairly accurate.

The accuracy of the information will become more apparent in the coming months as the defined volatility associated with global imbalances becomes more manifest. The imbalances have been causing systemic and structural challenges for decades, but the rest of the global community has been willing to accept those imbalances and challenges because of a lack of other alternatives to the US dollar.

So let’s review the actual status of the USD in the monetary framework and how it is used as an exchange rate anchor.

Meet the Asian Monetary Fund

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By JC Collins

The market turmoil of the last few days is reflective of the deflationary pressure which has been building since 2008. The imbalances in the monetary framework will continue with increasing levels of volatility until the reason for the imbalances begins to be corrected.

Readers of this site already understand the balance of payments challenges which are present in a USD based unipolar monetary system. The large accumulation of USD in the foreign exchange reserve accounts around the world is the leading cause of these systemic imbalances. The deflationary pressure which is inherent in such a system led to the Asian Financial Crisis of 1997 – 1998, as well as the crisis of 2008.

China’s Rate Change is Preparation for Widening of Trading Band

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By JC Collins

There are multiple things going on with the recent announcement from the People’s Bank of China to reduce the daily reference rate of the renminbi against to USD by 1.86%. The most obvious factor which we need to consider is that China is preparing to widen the trading band.

China’s State Council itself announced on July 24th that they would be widening the trading band against the USD from 2% to 3%. So the move yesterday by the PBoC should not be a big surprise when we consider the level of strategy taking place between China and the United States in regards to the multilateral transition.

Back in March I published a post titled When Will China End the Dollar Peg, where we reviewed the process which China will follow on its path to having their currency added to the SDR basket composition. In that piece I stated that China will in fact widen the trading band in the lead up to the SDR decision, or right after. As stated, this was recently confirmed by China’s State Council.

Analysis of Recent IMF Report on SDR Adjustments (FREEPOM)

JcollinsEconomics, FREEPOM60 Comments

By JC Collins

NOTE: Authorization is given to re-post this material so it reaches the widest possible audience. Please just link back to the POM site and give credit for the work. There is much confusion and misleading information being presented regarding the changes to the monetary framework. The more this process is understood the more people can prepare and financially plan.

With yesterday’s announcement from the IMF that a recommendation has been made to delay the effective date of the new SDR basket, which would include the Chinese renminbi, by 9 months, it becomes important that we take this opportunity to review the facts which have been presented here on POM over the last 19 months, and bring a sense of understanding to the issue.

The first thing to extract from the IMF statement yesterday is that the recommendation was not to exclude the RMB, but only delay it. Sites, such as Zero Hedge, have been quick to put out articles with titles stating that the IMF has delayed the addition of the RMB. This is misleading as the recommendation was based on the effective date of the new basket, as opposed to the vote on included the Chinese currency.