The Rise of SDR Denominated Bonds
By JC Collins
Back in January of 2014 I began to write macroeconomic posts for Philosophy of Metrics (POM) which concluded that the Special Drawing Right (SDR) of the International Monetary Fund would be elevated within the global monetary system as an alternative to the use of domestic currencies in a reserve capacity.
In fact I started a whole series of articles titled SDR’s and the New Bretton Woods. The first installment was subtitled BRICS Inject Capital into IMF Basket of Currencies and contained the following statement in reference to the 2010 Quota and Governance Reforms, as well as official documentation and reforms coming out of the international institutions:
“This tells us a few important things. One, the influence of the BRICS countries within the structure of the IMF is going to be greatly expanded. As stated, they will be in the top 10 shareholder ranks. These are positions previously dominated by western financial and U.S. dollar interests. The gravity of this statement cannot be understated.”
“Second, it’s telling us that the BRICS countries are bringing capital with them. Enough capital in fact, to double what the IMF presently holds on reserve. The BRICS countries will be injecting a huge amount of capital into the SDR system. One only has to research the amount of gold being exported to the BRICS countries, especially China, to understand where this capital, or worth, will come from. We’ll get back to that in a while.”
“Thirdly, expanding the influence of the BRICS countries within the structure of the IMF also “creates a fully elected Executive Board”. The Executive Board of the IMF is responsible for SDR allocation. Let that sink in for a moment. The BRICS countries are going to have an equal say on SDR allocation. The SDR is being built up as the world’s reserve currency. The value of the SDR will be based on a basket of currencies. And the U.S. Treasury is pushing congress to make this happen.”
This changing reality was challenging for so many to accept as it was still a few years ahead of the curve. While most analysis and predictions were based on economic collapse, the POM analysis was focused on the big picture of changing architecture to the international monetary framework and how the contraction in global growth would be addressed.
So many expected that the BRICS nations would orchestrate some sort of economic and monetary takeover of the western bankers. The obvious absurdity of such actions was openly explained here. But the truth only collected a relative few, and most rejected the information and conclusions presented on Philosophy of Metrics with varying levels of distain.
It was stated by so many that the policies of quantitative easing and low interest rates could never change as it would lead to economic ruin. POM was one of the only places where the normalization of monetary policy was considered a real possibility, and in fact was promoted as a foundational aspect of the multilateral transition itself.
There have been so many aspects of the POM thesis which have been validated to date. The most prominent ones are the inclusion of the Chinese renminbi in the SDR composition and the actual implementation of the 2010 Quota and Governance Reforms.
Other parts which deserve mentioning involve the fact that there has been no economic collapse and world war. The monetary and financial transition continues without the realization of these theories promoted by fear mongers. A point which I will continue to make in the coming months and years.
On March 2, 2016, I published a post titled Here Come the SDR Bonds. The article discussed the announcement by the G20 of a broader use of the SDR. From that post:
“Two years ago we reviewed how the problem of global deflation and contracting growth would be used to promote the concept of a large issuance of SDR denominated bonds. The reaction to this contraction in global growth has now been unfolding for some time. The recent POM article titled No G20 Stimulus Sets the Stage for Structural Reforms does a good job of summarising this reaction and clearly interpreting what the G20 Communique was really about.”
The latest confirmations come in the way of the People’s Bank of China themselves. Building on the previous announcements and confirmations PBoC Governor Zhou Xiaochuan has stated that they will be expanding the use of the reserve currencies which make up the SDR composition in their domestic economy. This builds on the concepts which we have reviewed in pieces discussing the aspects of the multicurrency system.
But that isn’t all.
It was also stated that the Chinese government will be issuing SDR denominated bonds within China.
Readers who have been with me here on POM since the beginning will immediately acknowledge that this aspect of the multilateral transition has been a cornerstone of the thesis presented. The issuance of SDR denominated bonds is the fundamental component of addressing the contraction of global growth and growing liquidity crisis.
Whether you agree or disagree with the merits of the SDR and the overall strategy being employed by the IMF and G20 is a separate issue from the fact that it is happening as explained here. This last announcement from the PBoC on the issuance of SDR bonds is the last big component of the POM thesis which required confirmation.
Now that China is on board with SDR bonds it will only be a matter of time before other central banks and global institutions also announce plans to issue SDR bonds. It is also extremely likely that the BRICS Development Bank, Asian Infrastructure Development Bank, and the Federal Reserve itself will also issue SDR bonds, all as previously discussed here.
These announcements will fundamentally change the arguments and positions which the alternative media has taken regarding international monetary and financial matters. So damning are these confirmations that it is a wonder if many of the other sites and personalities will even be able to continue spewing forth the fantastical scripts which have served to spread much fear and confusion.
Perhaps their time has now come and gone.
We can also expect that the exchange of SDR bonds for existing USD denominated instruments which have accumulated in the foreign exchange reserve accounts of central banks around the world will be taking place. This exchange will happen through something called substitution accounts. There is a ton of information available on POM regarding substitution accounts.
The reality of the multilateral transition can no longer be denied. Nor can the validity of the POM thesis and analysis. This is not stated out of an overblown sense of importance but out of the importance of bringing more people on board to this growing macroeconomic reality so important financial and investing decisions can be made in advance.
Prepared strategies are better than reactionary strategies, which aren’t really strategies at all.
As with this post, I have continued to provide a percentage of material here on POM for free. The minimal charge for the subscription material is well-worth the costs, as all of the free material out there on the internet regarding international monetary matters have been so grossly erroneousness and outright misleading that there should now be a flood of people departing for greener pastures.
The amount of time and labor (we all know they represent real wealth) which has been spent developing Philosophy of Metrics is worth something. At least considering the factual basis and accuracy of the trended information.
Readers Dane, Dineen, Mark, Dripfood, Alan, and so many others, continue to be extremely valuable research partners. Both Mark and Dripfood caught these latest announcement before I even had chance to read it myself. With so many of us now watching and researching, the POM thesis can only grow and become even more accurate. – JC
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