by Mike Cobb, Hemispheres Publishing
Now before you write me off as another tinfoil helmet whack job,
take a look at how the 2nd largest US airline, United Airlines defines its
liability for lost luggage:
For international travel to which the Montreal Convention applies
(including domestic portions of international travel), United’s liability is
limited to 1,131 SDR (Special Drawing
Rights) per customer for checked and unchecked baggage.
That’s right. United Airlines uses SDR as part of its normal and
customary business practices. Now technically, only a sovereign country can
acquire and hold SDR (right now) so what
is United Airlines doing quoting SDR as a measure of value.
But it gets better. In 2011 there was a serious proposal to price
oil, gold and other hard assets in SDR. This would, in one fell swoop, replace
the US Dollar as the world reserve currency. As long as SDR are country to
country, they represent a sovereign reserve. But when lost luggage is priced in
SDR, and maybe oil too, this sounds like a new form of money.
And now, SDR have been proposed by the International Monetary Fund
(IMF) as a possible global currency. In their own words: “In the even longer
run, if there were political willingness to do so, these securities could
constitute an embryo of global currency.” And, “(g)eneralized use of SDR as a
unit of account for global trade invoicing would also create demand for SDR-
denominated assets as both the public and private sectors develop exposure to
SDR- denominated flows.”
Where did all this start? The International Monetary Fund (IMF)
invented the Special Drawing Rights (SDR) in 1969 to function as an
“international reserve asset.” The SDR were created as part of the Bretton
Woods Agreement, which operated on a gold/US dollar standard until 1973.
Initially the SDR was tied to gold, but with Nixon’s breaking of the gold
standard, the value basis was switched to a basket of currencies and has
remained such since.
The SDR has now taken on a life of its own. The IMF now also sees
the SDR as a means to create liquidity in the system. In 2009, when banks in
the US and aroud the globe were teetering on the brink of collapse, the IMF
“printed” about 180 billion new SDR to inject into the financial system. To
help mitigate the effects of the financial crisis, a third general SDR
allocation of SDR 161.2 billion was made on August 28, 2009.
Separately, the Fourth Amendment to the Articles of Agreement
became effective August 10, 2009 and provided for a special one-time allocation
of SDR 21.5 billion.
Money Magazine’s online edition reported in 2011, that “Dominique
Strauss-Kahn, managing director of the IMF, acknowledged there are some
‘technical hurdles’ involved with SDR, but he believes they could help correct
global imbalances and shore up the global financial system.” He went on to say,
“Over time, there may also be a role for the SDR to contribute to a more stable
international monetary system.” Recent proposals have been floated to increase
the amount by another couple trillion more.
The IMF and member countries see the SDR as a powerful way to keep
the financial system stabilized, but that stability rests on a house of cards
created by the IMF and each country’s ability to print more money as needed.
The US dollar still remains strong even with the trillions injected in various
stimulus packages in the past decade. The main reason is that even though huge
sums of new dollars entered the system, the velocity of those dollars is slow.
Most of it has gone into propping up the capital reserves of regulated banks
and financial institutions. If and when these dollars begin to circulate in the
economy, the effect will be felt as inflation to the consumer.
In the last decade, the cost of commodities in dollar terms has
sored. The HIRE act has wittingly or unwittingly made the US dollar difficult
to utilize as an international means of settlement. In November of 2010, China
and Russia stopped requiring companies to trade in dollars and settled accounts
in Rubles and Yuan. What company would want to risk the seizure of 30% of their
transfer just for the privilege of trading in dollars? As more and more
companies decide to use their own currencies, the strength of the dollar is bound
to fall. The SDR is the logical replacement and is being positioned to take its
place.
China is running around the globe buying mining companies, oil
production, and other hard assets with their huge stockpile of US dollars. They
are effectively dumping dollars for commodities, or actually even better, the
source and production of commodities. Talk about a long-term multigenerational
play.
HIRE Act
and Dollar Depreciation
Match this up with the draconian provisions of the HIRE Act, a
strong form of US currency controls and, “The idea was that an off-market
reserve pool managed by the Fund would provide an opportunity for large reserve
holders to diversify their reserve assets while limiting the risk of market
disruption, particularly a sharp depreciation of the dollar.”
Where this will end up is anyone’s guess, but the push for a new
currency that takes the US dollar out of its current role as the world reserve
currency is not happening willy nilly. There is a strategic focus behind the
change and the better we understand what is happening and why, the better we
can protect ourselves and the value of our assets.
A group of concerned experts
and panelists will be gathering in Belize early next month to discuss this and
other important issues. The round robin brainstorming sessions are an excellent
opportunity to hear what is on everyone’s mind at a level rarely put into
writing.
Friends, if you use the search engine you will find other articles on the SDR, replacing the U.S. Dollar and nations that are using gold to purchase oil.
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