Bank for International Settlements to Offer SDR Products and Services

Economics, Premium POM

Acquires Direct Access to Renminbi Onshore (CNY) Market

By JC Collins

While giving a speech to the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) on June 20, 2016, Peter Zöllner from the Bank for International Settlements provided additional information on the multilateral monetary transition and the rise of the Special Drawing Right (SDR) as a supra-sovereign reserve asset.

In the official remarks Mr. Zöllner discussed the internationalization of the Chinese renminbi and provided a realistic path forward for an increase in reserve accumulation.  The RMB fundamentals were contrasted with a continuing role for the US dollar and the incremental broadening of SDR functionality.

The role of the SDR and the further internationalization of the renminbi were described as follows:

“For the renminbi to develop the status of reserve currency, much will depend on whether and how the Chinese authorities will continue to open up their markets and modernize their market infrastructure. It is reasonable to expect that the liberalization of the last few years will continue, allowing even greater access to the renminbi both offshore and onshore. As we have seen, significant steps have been taken to remove restrictions on investing in the renminbi. On top of this, the authorities are trying to promote the use of the renminbi indirectly through initiatives aimed at supporting the SDR, including a proposal to set up an SDR-denominated bond platform.”

The alignment on monetary reform between the BIS, China, and the International Monetary Fund should be accepted as fact.  The official publications of all continue to support the fundamental methodology of the transmutation of the international financial framework.

Zöllner went on to confirm that:

“…– for the BIS – the SDR has been the unit of account since 2003 when it replaced the so-called gold franc.”

Additional comments support a broader use of the SDR in the coming years and the importance of the renminbi being included in the SDR basket composition.  This broader use of the SDR will require additional financial products and services, such as the Chinese SDR-denominated bond platform.  But it doesn’t end there.  The BIS itself has now expressed its plans to support an expanded SDR function:

“Furthermore, official institutions are relying on us to provide banking products and services in SDR as well as in all its basket currencies.”

It has been expressed here on POM previously that the BIS would act as a clearing house for SDR transactions. The reference is also to additional products and services which will provide the SDR with deeper integrity and more sustainable support to ensure other nations both purchase and issue SDR-denominated financial securities.

And if there was still any doubt about the alignment between the China and the larger international banking interests’ one need only consider the following statement:

“From this, it becomes clear that the BIS is undertaking significant efforts to prepare for a smooth switchover to the new SDR basket. We have, for example, acquired direct access to the CNY FX market by installing a trading terminal a few months ago. We are updating our systems, reviewing our procedures and extending our product range.”

The trend of macroeconomic consolidation is clear.  Those who have been anticipating a BRICS revolution and overthrow of western banking cartels should consider the validity of their sources of information.  Entertainment and newstainment are all fine and dandy, but facts must be considered and informed decisions will need to be independently made in regards to each individual position.

In closing I’d like to draw attention to the following remarks:

“The SDR is a synthetic currency created in 1969 by the IMF. Its value was initially expressed in terms of gold, as it was conceived in a monetary system where the link between currencies and gold set limits on how far the growing demand for reserves could be met.”

It is interesting that a representative from the BIS would draw attention to this fact.  Though it doesn’t offer direct supporting evidence, it does provide indirect evidence that the intention is to add gold to the SDR composition down the road.  Large reserve accumulation has become one of the direct threats to the international monetary system, and the reference made here is not coincidental.  – JC