Thursday, September 03, 2009
Word comes in this Bloomberg report that China will buy up to $50 billion in new debt from the IMF (International Monetary Fund) otherwise known as SDRs (special drawing rights).
The note-purchase deal enables China to take part in a $500 billion increase in the IMF’s coffers to which the Group of 20 industrial and emerging nations agreed in April.It should be interesting to see how this all pans out - that is, how popular these become. The Chinese have been complaining loudly about the U.S. dollar for some time now, pining for an alternative of some sort with IMF SDRs being their preference since late last year.
Russia and Brazil said in June that they would each buy $10 billion of bonds from the IMF. India also has indicated it would contribute to an IMF bond program. The three nations plus China make up the so-called BRICs.
SDRs represent a basket of currencies consisting of the U.S. dollar, the euro, the yen and the British pound. They were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.