IMF and China Give US Ultimatum

Economics, FREEPOM33 Comments

America Becoming Isolated in the Monetary Framework

By JC Collins

In a June 12 press release from the International Monetary Fund it was made clear that the time for the United States to act on the 2010QGR is fast approaching.  The IMF has given the US until September 15 to enact the quota and governance reforms as agreed upon back in 2010.

From that date the “Plan B workaround” will begin to be implemented and the completion of the steps required to reach the objectives of the 2010QGR will need to be fully implemented by mid-December, 2015. This statement can be interpreted several different ways.  The obvious is that the methodology for the “workaround” will be implemented by mid-December, but the actual process of completing the reforms will take somewhat longer.

This is to be expected, as things in the international monetary architecture do not happen overnight.

The integration of data reporting standards and macropudential policies amongst the IMF, China, World Bank, BRICS New Development Bank, and Asian Infrastructure Investment Bank (AIIB), along with the needed changes to the balance of payments framework (which includes exchange rate adjustments), are heralding in the new multilateral framework which the supra-sovereign international money clearing unit (represented initially by the SDR), will expand and grow upon.

As stated previously, the long-term goal is to transition the SDR from a basket of currencies (like the ECU in the lead up to the euro) to the actual international money clearing unit that was originally intended back in 1944 during Bretton Woods, the bancor.

In the post When Will China End the Dollar Peg, posted back in March, 2015, we reviewed how China will likely widen the managed peg which the renminbi holds against the dollar.  In a recent article from Bloomberg, this is exactly what is being suggested and stated that China will do in the lead up to the decision on the SDR.

The inclusion of the RMB to the SDR basket composition is a forgone conclusion at this point.  The United Stated does not have the political influence to fight the 2010QGR and the SDR changes.  The fact that the other major members of the IMF have signed on to the AIIB is a clear indicator that the US is being isolated on the global monetary field.

All players, including China, are intending to utilize the IMF and SDR.  This should be clear by the Chinese push to have the RMB included in the SDR composition, and the acceptance of this eventuality by the IMF.

It is important to point out that the IMF is not a US institution, it is an international monetary institution which the US has dominated through the use of the dollar as the international money clearing unit since 1944.  The original intention was to use the bancor as the reserve asset, and trade would be cleared through the International Clearing Union.  The US vetoed the use of the bancor and the IMF was created in place of the ICU.

Now the IMF is being re-worked by the rest of the world, including China and BRICS, to act in the original role intended for the ICU, with the SDR acting as the reserve asset for a period of time as the bancor is developed and implemented in the forthcoming years, much like the ECU preceded the euro.

The multilateral transition is progressing as described in detail here on POM.  The rumbles of the coming autumn months are loud, and no doubt there will volatility and a few surprises.  The ability of the US to grind out further delays will be offset by its need to have the support of the rest of the global community to continue its deficit spending, which will be once again a domestic political hot potato in October.  - JC

From the IMF Press Release:

The Executive Board of the International Monetary Fund (IMF) adopted on June 11, 2015, a report to the Board of Governors—the IMF’s highest decision-making body—on interim steps on quota and governance reform.

In light of continuing delays in the implementation of the 2010 quota and governance reforms (2010 Reforms), the Board of Governors, in February 2015, adopted Resolution No. 70-1, which called on the Executive Board to work expeditiously and to complete its work as soon as possible on interim steps in the key areas covered by the 2010 Reforms, pending their full implementation, and thus to enable the Board of Governors to reach agreement on steps that represent meaningful progress towards the objectives of the 2010 Reforms by June 30, 2015 (see Press Release No. 15/20).1

In its Report, the Executive Board notes that, while progress has been made, the Executive Board has concluded that more time is needed to build the necessary consensus among the membership to complete its work on interim steps. The Report further notes that the Executive Board reiterates its deep disappointment with the continued delay in the effectiveness of the 2010 Reforms, and urges the United States to ratify them as soon as possible. The Report indicates that, if the 2010 Reforms are not ratified by September 15, 2015, the Executive Board will consider prior to end-September which interim solution to pursue and will, building on its ongoing discussions, complete its work on steps that represent meaningful progress towards the objectives of the 2010 Reforms as early as possible and no later than mid-December 2015. The Report notes that the Executive Board will continue to follow the guidance and directions provided by the IMFC and the Board of Governors on all other quota and governance-related matters.

Subscribe to POM for more detailed analysis on macroeconomic trends.

SUBSCRIBE

All 3 month and 1 year subscriptions receive access to the epublication series The Economic Transition Papers.

33 Comments on “IMF and China Give US Ultimatum”

  1. The months ahead will surely be interesting to follow. The world has the US in a vice. This will be something to watch as the months go by to see what the US will do. Will they comply or will they continue to fight. They have no leverage and being the bully to the whole world won't work.

    Congrats to you JC on your accurate reporting. People that I gave your information to told me I was crazy, even one blasted me pretty good and he was considered a good friend. I left his site and never went back. No hard feelings, don't get me wrong, but someone who just has a mindset that will not receive any information, but what they want to hear will never change. I am so glad that I continued to follow you. The first time I read your first article I knew you were the man..:)

    1. Thanks for the continuing support Dottie. People seldom accept truth and facts, as truth and facts usually contradict what they want to believe and think.

  2. Thanks JC. That helps me understand the structure of the IMF. Perhaps this fire from them and China is a reason for the fast track trade legislation we've been seeing.

    On a lighter side Obama tells a heckler that he can't heckle in his house. Isn't the Whitehouse the peoples house? Lol. Just like Romney saying in his old campaign that he will work with the people...The president don't work with people he works for the people. No wonder he lost. Well that and telling the world how to live off dividends so you only have to pay 15% income tax:)

    https://youtu.be/w71OGC6Jx9w

  3. JC a question that I keep forgetting to ask.. I know Israel does not play a role or at least any role that I know of in the IMF, but what role do you think they will play in this new monetary system and the Middle East as well? Thank you.

    1. That's a convoluted answer for sure. In simple terms, though it may take years to fully accomplish, I think Jerusalem will become a city state like Vatican City, City of London, and Washington DC. The city will be governed by a multi-religious body which is regulated by the UN. Israel itself will be strategically positioned within a larger Middle Eastern monetary union. Probably begrudgingly. I see that as the end game. How we get there will be problematic and could involve a larger regional war.

      As a side note, I also see Hong Kong becoming a city state as well. The recent demonstrations could be symptomatic of that process.

      1. I can easily envision a replica of an Egyptian Obelisk erected on the hill side above Hong Kong Harbor some day soon. I have had lunches and dinners at a place there that would suit the purposes just nicely.

      2. City States ae interesting entities. I can see a general revival of the City State as national borders fade and consolidated regional borders take over. JC, as you've mentioned before, the movements of globalization and localization appear to move in tandem.

    2. Dottie:

      The Rothchilds ARE some of the key role players and controllers in the IMF, the Federal Reserve, the World Bank, the Bank of International Settlement, and Israel. The "new monetary system" that you referred to, as well as total control of the world economy, was and IS their idea and goal. Are you aware that control over Palatine and the present State of Israel came into to existence specifically because of the was bought, paid for, and controlled by the Rothchilds?. The Rothchilds and the Rockefellers ARE the cabal of vipers that are the controlling evil at the center of international banking.

      Also, for China to be officially included into the cabal of vipers, then an official Egyptian Obelisk or a replica an Egyptian Obelisk of an will have to be erected and dedicated near its center of power as in Rome, London, Washington, and Jerusalem.

      Oz

      1. Oz I know all about the Rothschilds, but my reading they are not strong figures in this anymore. I am not sure, but JC I am sure would know, but I don't believe there is any one dynasty in control anymore.

          1. I hesitate to get into everyones different interpretations of the bible. I know what I know, but sharing it on this forum is not actually a great idea.

  4. "Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States.' - Jared Bernstein NYT article Dethrone 'King Dollar'

    Are the lack of US savings and trade deficits supported or actually caused by surplus nations? Is the reserve currency actually a burden?

    http://blog.mpettis.com/2014/10/are-we-starting-to-see-why-its-really-the-exorbitant-burden/

    I have this analogy that the reserve currency nation is a bit like a driver in a race that obeys a certain amount of traffic rules. The more rules the issuer obeys, i.e. gold standard, the more easily its competitors can game its moves and gain an advantage. What if the narrative that the US dollar's privilege is ending is more wrong than right and actually a truer narrative is the ability to game the US dollar is ending? How does the SDR provide the discipline needed in the monetary system to prevent competitive devaluation?

  5. Hey J.C, may I ask your thoughts about Turkey as well? As a I find our government's policies fairly complicated, I can't figure whether Turkey will belong to the European or Eurasian Union ? I've for long thought that once the Eastern sector of the country secedes to form first an autonomous Kurdish entity which will later transition to a full Kurdish state(maybe canaan or promised lands conspiracy) , Turkey will be accepted into the European Union.Now I find it the current situation very confusing.to opine. I also feel and accept Turkey and its public will feel its karma for its participation in the campaign against Assad and ongoing covert support for ISIS. Any ideas you or others have will be appreciated.

    1. Safenet, I can see Turkey position itself as a neutral entity. I kind of Switzerland on the vertex point of intersecting lines of regional division?

      1. Thanks dripfood,that makes a lot of sense. There are signs already when one follows the energy routes from Iran&Iraq, Central Asia and Russia. Maybe, Istanbul declares itself a city-state, a bridgehead between Europe&Asia. By the way, we have some Egyptian obelisks in the old town as well :))

  6. I don't even know what to say. Definitely can see how this could all happen. I have seen what seems to be a deliberate dividing up of that area through war..that is the Middle East area... and I also most definitely see that with Israel that it would begrudgingly and I can see a larger war resulting from it. Thank you again JC.. you always come through. And I will be keeping an eye on Hong Kong, honestly hadn't thought about that.

  7. Hong Kong and China have been separate jurisdictions for 174 years. The differences between the two are irreconcilable. Having regained sovereignty, there would be no loss of face for China in granting independence to Hong Kong now. With the new Multilateral Financial System in place, together with a convertible, floating reserve currency backed by the world's largest stockpile of gold, China's need for Hong Kong will have largely disappeared. An amicable divorce would be an ideal outcome, and the two could no doubt co-exist and prosper peacefully; but there is so much emotion about being Chinese involved in independence for Hong Kong, it might have to wait a while until cooler heads prevail.

  8. JC its Friday and we could use a laugh so let me ask.

    Do you advance your computer clock in order to see this information ahead of time? lmao!

    Your good pal:) Thank you.

  9. Very interesting things keep happening on. Ten days ago, Chinese Bank of China announces it is now one of the banks in the renowned "London Gold Fix". Now, only a few days ago, world's largest bank by assets, Chinese ICBC, announces it is pondering whether to enter into "London Gold Fix". Last year, Deutsche Bank left the "fix" recently, current members are Barclays, HSBC, Nova Scotia,Societe Generale, UBS AG with Bank of China recently added. If ICBC is added to this mix as well, the multilateralization of this "fix" is going to require more cooperation between member banks&countries. Again, no overthrow of western financial mechanisms by Chinese. While this helps ensure that London stays the most important financial center, the question is "With the entrance of Chinese banks, what will the prices be set in, as it was hitherto in dollars?" Another interesting thing to take note is Chinese are considering a complementary mechanism to this in their Shanghai Gold Exchange, which will be traded in yuan. It must be a huge sum of money on the sidelines waiting to flock into yuan-denominated products. All of the links are below:

    1-) http://www.bloomberg.com/news/articles/2015-06-16/bank-of-china-to-participate-in-lbma-gold-pricing-lbma-says

    2-) http://www.bloomberg.com/news/articles/2015-06-25/icbc-considers-london-gold-fix-as-more-china-membership-expected

    3-) http://uk.reuters.com/article/2015/06/25/uk-china-gold-icbc-idUKKBN0P50BO20150625

    "London Gold Fix" is the premiere mechanism for global settlement of gold prices; member banks set the prices twice a day, at 10:30 am and 15:00 pm.

  10. "Just as falling yields have supported asset valuation gains in recent years, an eventual normalization would generate losses ... Banks' equity capital would shrink."---Guess who.

  11. The real reason why everyone is crying about the lack of bond liquidity: Everybody and his brother wants to short bonds now, but the bid stack isn't deep enough and no longs want to lend bonds to a short seller. The longs(pensions) want to sell and rotate into a high yield. The system needs a dupe, a bagholder.

    This is what 7 years of ZIRP has set up. By not allowing markets to naturally clear, CB intervention has engendered a very lopsided, destabilizing trade.

  12. Everbank is back with a precious metal-linked CD. I did one of these from 2008-2013. Worked out well since it matured before the April '13 takedown.

    This time it works a little different. Rather than tracking the London PM fix every 6 months: "On each established Pricing Date, the interim prices for the metals representing the MarketSafe® Power MetalsSM CD (the "Interim Prices") will be quoted from Bloomberg, using following symbols: GOLD=GOLDLNPM , SILVER=SLVRLN , COPPER=LOCADY . In the event Bloomberg fails to publish such prices for any one or all of the Reference Index metals, EverBank reserves the right to use an alternative equivalent index or price determination in its discretion."

    Interesting, no LBMA fix at all!

    And here's the kicker: "The Market Upside Payment of this CD will be based on the equally weighted value of selected indices reflecting the performance of these metals as measured on the Initial Value Date and on the established Pricing Dates, subject to a 45% cap for each metal at each Pricing Date"

    45% cap! WTF. I know it's ambiguous with respect to the 45% cap per each annual pricing date. What they mean is that total return after 5 years is capped at 45%. You can't go up 1.45 times the first year and then compound another 1.45 the next year. Sorry. If gold goes up 5 fold you lose.

  13. "It is reported that the Silk Road has two gold fund investment direction, one in the form of sub-funds launched gold ETF, gold industry chain funds, gold funds and other financial ecological chain, the second is to invest in gold capital markets, including gold listed companies private placement, merger acquisitions. Among them is easy to see, with the gold fund to strengthen the "along the way" along the national investment, is conducive to technology export and brand output Chinese gold industry, the radiation Silk Road economic belt. While the domestic gold enterprises global distribution basis overseas to find mine acquisitions, to accelerate the process of globalization of China's gold enterprises active cross-border gold trade, re-export and trading activities, leveraging the financial attributes of gold, lifting China gold pricing, help the internationalization of RMB"

    http://www.guancha.cn/economy/2015_05_28_321304.shtml

Leave a Reply