Time to Improve SDR Market Infrastructure
During the Spring Meetings of the International Monetary Fund and World Bank in Washington this past weekend the Vice Governor of the People’s Bank of China called for an improvement to the existing SDR market infrastructure.
Yi Gang stated that the new SDR bond market still lacked liquidity and suggested that market institutions could increase the use of the SDR as a unit of account. This would encourage further participation in the SDR market and would further build on the advances which were made last year when the World Bank started selling three year SDR bonds. This was followed by Standard Chartered Bank of Hong Kong issuing one year SDR denominated bonds.
The use of the Special Drawing Right as a unit of account has benefits which will contribute to the rebalancing of the international monetary system. The existing framework of the system has inherited deficiencies from the broad use of the US dollar as the primary unit of account, or international reserve currency.
China has been pushing for a broader use of the SDR since 2009 as a response to the financial crisis.
Since that time China has been incrementally opening up its financial markets and internationalizing the renminbi. Last year the inclusion of the renminbi alongside the USD, pound, euro, and yen in the SDR basket became a reality, which provides more reason for Beijing to push for a broader use of the SDR.
The SDR will assist with further and deeper internationalization of the RMB which will further the objective of elevating the Chinese currency alongside the dollar in a multi-currency reserve system. Such a system is becoming a reality whether it is admitted or not. Those who chose not to understand the fundamentals of this emerging framework will be unable to interpret data and make accurate analysis.
As Xi Gang pointed out in Washington, the international role of the dollar will not be removed any time soon. But what he doesn’t mention is that the RMB will rise to a parallel position with the dollar as the SDR slowly and incrementally takes over more liquidity responsibilities in the international system.
It should be considered that the SDR and RMB represent a dual attack upon the dollar. This attack is not meant to destroy the dollar but is meant to defang the American foreign policy and “exorbitant privilege” which has been an advantage of the unchallenged role of the international dollar.
The SDR bond moves by the IMF, World Bank and Standard Chartered last year were the first major moves by the international banking interests to restructure the framework and put Anglo-American interests on notice of the impending change. There is nothing which those interests can do to stop this transformation. Those who thought that Trump would in fact put America first have now been hammered with an endless list of flip-flops and roundabouts which prove that the new American administration is in fact implementing the strategy of the international banking interests.
This should have been apparent before now but most wanted to believe that Trump would be the hero he sold himself as. There may even be some benefits to the American people and others around the world as the system rebalances. Trump may even make things better inside the nation with domestic policies and job growth. But these things would have happened regardless.
The battle between the dual left/right American establishment and the Trump establishment was never about just the American people. Insomuch that the Trump strategy was meant to get the American people to accept non-nationalism policy changes which were dressed up as a new modern nationalism.
This is becoming more obvious with each passing week and month. The Trump establishment will be the prime beneficiary of the geopolitical and socioeconomic transformation while the old guard Bush, Clinton, etc. establishment are left scavenging on the sides of the road for whatever scraps and leftovers they can collect.
There are also the growing ideological divisions which are developing in America, and for the most part Western civilization as a whole. This is worrisome because the left and right are being set up for a massive civil disturbance with neither side willing to back down.
Such a national emergency could also contribute to the diminishing role of the USD as the international monetary world demands stability. The Anglo-American strategy, with the assistance of the Trump establishment, may be implementing a destabilization plan meant to cause uncertainty on Asia and Eastern Europe.
The longer the implementation of the Eurasian Union can be prolonged the more time America has to secure access to resources and ensure influence over maritime trade routes. It’s not a coincidence that China is pushing for the broader use of the SDR and the growth of its liquidity market.
The connection between the Eurasian Union and the SDR should be relatable to most POM readers, as the region specific monetary institutions in Asia are structured to work within the larger IMF framework. It would do Trump good to saddle up with the IMF and other global institutions to promote and encourage delays with the multilateral framework.
The recent statement by Trump that he is both a nationalist and a globalist has surprised many. The “America First” mantra does not align with the globalist mandates. At least not as its being promoted and packaged. Nothing is left to chance and everything is scripted for a specific purpose. This statement is not an accident, nor was it misspoken. It was intentional and meant to push the subtle message that something larger is in process.
The fact that it aligns in time frame with the PBoC statement on the SDR and the meeting between Ivanka Trump, Angela Merkel and IMF Managing Director Christine Lagarde at the Women 20 Summit should also not be considered a coincidence. – JC
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JC Collins can be contacted at firstname.lastname@example.org