Wikinvest Wire

A "fresh SDR issuance"

Friday, April 10, 2009

The current issue of The Economist contains an informative article about the IMF's plan to make more use of Special Drawing Rights to help ease the global economy's pain.

SPECIAL Drawing Rights, or SDRs, are often referred to as the IMF’s currency. Although that is useful shorthand, the SDR is not, in fact, a currency, but rather the IMF’s unit of account. The value of an SDR is defined as the value of a fixed amount of yen, dollars, pounds and euros, expressed in dollars at the current exchange rate. The composition of the basket is altered every five years to reflect changes in the importance of different currencies in the world’s trading system.

SDRs nevertheless represent a potential claim on other countries’ freely usable currency reserves, for which they can be exchanged voluntarily. Alternatively, countries with strong external finances can buy SDRs from countries which need hard currency. On April 2nd the G20 countries authorised the IMF to issue $250 billion in new SDRs. The advantage of a fresh SDR issuance is that it immediately augments countries’ foreign reserves without needing to be lent.
No one really seemed to bat an eye when word came that another quarter of a trillion dollars worth of SDRs will be printed up.

It's funny how this is about 25 times the value of the gold reserves they are planning to sell, also for the greater good. In fact, if the IMF sold all of its gold reserves it would only amount to about $80 billion at today's prices, less than a third of the "value" of the SDRs that they will create with a few computer keystrokes.
Although the G20 portrayed the new SDRs as a quick way of channelling resources into emerging economies, SDRs are in fact allocated in proportion to countries’ existing IMF quotas (see table).

This means that around $170 billion of the $250 billion of new SDRs that are to be issued will land in the reserves of rich countries, because they have the lion’s share of existing IMF quotas. Still, the increases in the reserves of some emerging economies are not trivial. South Korea’s will grow by $3.4 billion, India’s by $4.8 billion, Brazil’s by $3.5 billion and Russia’s by $6.9 billion. Another sign of the instrument’s bluntness can be seen from the fact that China’s vast reserves, already nearly $2 trillion, will go up by $9.3 billion.

Of course, the IMF hopes that some rich countries (or reserve-rich emerging ones) will lend their share of the new SDR allocation to those in greater need. But this is by no means guaranteed. America, for example, needs Congress’s approval to part with its share. The last proposed SDR allocation, of $21.4 billion, was approved by the IMF’s board in 1997. But although 131 countries with 78% of the total votes in the IMF accepted the proposal, it was never put into effect. Such decisions require 85% support—and America, with nearly 17% of the votes in the IMF, never approved it.
At some point, you'd think that all this money creation madness and "papering over" of the world's economic ills will come to a stop.

Surely, it can't continue indefinitely. Can it?


Anonymous said...

We, live in times "America's Founders would have never imagined

in the USA we have thousands at the "TOP" that are Traditors that need Hanging or the Gullitine.

But the Last of the settler sons and Daughters are dying off and the Grandchildren are Drugged, Spoiled or fightigng to survive

God help our Consitutional Gov't *&* Bill of Rights

As the Billionaires of the World look to Ruin "America" -The Last beam-of-Light of Freedom

I am glad I am 59 as I do not want to see the "RAPE *&* Pillage of all the "AMERICAN's Great values and fairness to disolve as the "World" enters another "Dark Age".

America should have stayed Isolationism

As all those we have taken in and helped ROUND the "WORLD" will on act as Vulgures and pick the skin off the ancesery of "America" founders from within & without

And the "NEW" masters of the "WORLD" will be the ""of the World

These money changers will dictatev
what are and are not acceptable Morals , Sexuallity , Who will live & who will die and enslave all but them and them proceed to use and abuse every living creature for their comfort

But one thing for sure they sheal ALL see "HELL" as their reward from their Masters ---Who are of the DARK SIDE (Agents of the Devil)

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