Is China preparing for a “Super SDR” to challenge the US dollar?
China has made every effort to bypass the US/EU financial institutions by creating parallel structures such as the AIIB, BRICS bank, launching initiatives such as New Silk Road, OBOR, and CIPs to replace SWIFT. They have also built-up their gold reserves in view of a possible gold-backed Yuan.
So why is China so committed to the IMF?
The Chinese have met all IMF requests such as reporting their gold reserves, changing central bank accounting. Now, most recently, they even changed how they report GDP.
Source: China changes how it reports GDP to meet IMF standards.
China has also fervently pursued the goal to have the Yuan accepted as one of the SDR reserves currency.
What for? The IMF’s “SDR” (Special Drawing Rights) is an archaic structure that became obsolete once the dollar came off the gold exchange standard in the early 1970.
The Chinese seem to believe there’s an important role to be played by the SDR and the IMF:
According to Zhou Xiaochuan, the influential governor of the people’s bank of China, SDR “serves as a light in the tunnel for reform of the monetary system” . He put forward a proposal with a number of actions to promote the SDR as a supra-sovereign reserve currency.
Zhou Xiaochuan proposes an updated and enlarged SDR, which includes the Yuan, to act as a supra-sovereign reserve currency, and the IMF as the institution to manage SDR subscription and redemption between trading countries.
More details on this can be read at these sources:
Source: Reform the international monetary system
Source: Keynes’ farsighted “Bancor” proposal not adopted at Bretton Woods Regrettable
Source: Debate about the SDR as a global reserve currency
Source
These ideas were also recently echoed by Justin Lin , a World Bank’s former chief economist.
Source: “Replace Dollar with Super Currency”
It would seem that the Chinese view SDR as an interim solution in their long-term quest to displace the US dollar as reserve currency. There isn’t, at present, any national currency (gold-backed or not) able to supplant the US dollar.
SDR, being a derivative of the US dollar (and a few other major national currencies) would not be a replacement, but rather a reduction, of the role of the US dollar.
This is not a totally new concept: SDR already fulfilled the role of the reserve currency back in 1960s, when they satisfied the need for reserve assets while the major reserve currency (USD) was linked to gold.
According to the financial times, currently SDR represents less than 4% of all non-gold foreign reserves.
Source: The RMB and SDR: Symbol over substance.
In other words: SDR is currently insignificant.
In order to make the SDR relevant, a capital increase at the IMF would need to accompany the addition of any new currency in the SDR.
Some estimates place this capital requirement at USD 2 Trillion.
Source: IMF calls for dollar alternative
China, of course, has that kind of money, and could provide the financial backing for the SDR. This also provides them with an elegant way to recycle their massive US dollar reserves.
In order to assign greater power to China(and raise capital), the IMF leadership has proposed reforms for itself such as raising capital requirements and improving the voting system to include emerging market economies. Not surprisingly these reforms were blocked by the US.
Source: US blocking IMF reform targeted at China
Source: US fails to approve IMF reforms
This has caused unhappiness amongst the Europeans, who would presumably like to see the IMF with more capital in order to help them with the bail out of Greece and Ukraine and perhaps also with the reconstruction Syria.
Source: China knocking on door of IMF’s major league, US wavers
Source: IMF approves USD 17.5 bn bailout package for Ukraine
Christine Lagarde, frustrated with the US stalling the reforms, has indicated there she has set in motion a “Plan B”.
Source: IMF eyes “Plan B” for reforming itself without U.S
Source: Christine Lagarde warns US over IMF reform failings
Source: IMF governance reform: Time for plan B
But what exactly is “Plan B”? To bypass the US on the SDR and capital increase decision?
Here is what the head of the Eurogroup, Jeroen Djisselbloem, said at this year’s annual IMF meeting: “China is becoming more and more active in our institutions, which is welcome … The U.S. should make sure that it stays very much involved and in the lead, instead of taking the current defensive position”
Source: The US should ratify IMF reform to avoid Isolation: Eurogroup Head
The IMF governing board is due to meet end of October 2015 for their quinquennial meeting (it takes place once every five years).
Source: IMF work progresses on 2015 SDR basket review
The IMF board has already stated that any decision in October 2015 to include the Yuan will only be implemented in October 2016, in order to allow financial professionals “sufficient lead time to adjust to the change”.
Source: IMF will not include Yuan in reserve currency basket until October 2016
Apparently, the inclusion of the Yuan in the SDR is not a question of “if” but “when”…
Source: IMF press release
So is the IMF about to throw the US under the bus and go ahead with reforms without their “master”?
Are we about to witness the announcement of a new “super” SDR, which includes the Yuan and financial backing from China?
PS: I know the idea of IMF and SDR may sound boring, but it’s part of China’s financial war (to accompany the “hot” war going on right now in Syria)
China will have to do something—the present controllers have no intention of changing course, & are further entrenching their business interests.
This is why the surprise recent announcement from Lord O on why they were just kidding about leaving ghanistan, & why the recent upswing in violence there.
This website has nothing to do with the topic or your comment. Please keep on topic. Mod TR.
http://82.221.129.208/ifyouareinamericayouprobablycantseethis1.html
GMO
– Overnight all the popcorn went GMO in Mexico across a huge number of, if not all brands. Gmo popcorn does not pop the same as natural corn, GMO popcorn is chewy / way too firm after being popped and the failed popped kernels that are brown enough to chew through taste downright poisonous.
And low and behold – GMO poppy plants just showed up in Afghanistan. Cute. Ok, so the heroin industry is tied into the biotech industry, and now we have new GMO poppy plants being provided to the growers in Afghanistan, plants which need less water, grow faster and larger than normal plants and produce twice the heroin. Yep, the U.S. went into Afghanistan a year after the Taliban shut down all heroin production, and now that the Taliban is wiped out, it´s boom time in heroin land, complete with GMO seed from . . . . . WHERE??!!?? Cute.
What does this have to do with the topic?
Mod: What Anonymous(s) do is troll and spam the comment sections.
Wise up to the junk filler and distractions.
Impossible to fix?
Get ruthless with this operation to trash the Vineyard.
***one of the moderators asked this anon what the comment has to do with the topic – modaa
Totally agree with Mats re trolls.
This has been going on too long.
Blocking them has nothing to do with ‘free speech’ or censure, but with staying on topic without distorting it and without deviating the attention of the reader.
leonis
@anonymous: you’re the best (almost) since white *unmodified* sliced bread.
To moderator: why suddenly are you singling out this commentor, when it seems off-topic comments are made on a consistant basis on this site, no matter the subject post? Many comments appear which begin with the qualifier “off topic, but…”. Yet I see no reprimand by moderation made for most of those. Policy should apply across the board, should it not?
Charles Fasola, if you read the post by Anon – the link has nothing whatsoever to do with the first comment. And the next section of the post has absolutely nothing to do with either the topic or even the Saker website. That is why the commenter was questioned and warned. This particular commenter has tried many times to put irrelevant links. When posters continue in this vein the next time their comments are trashed. Most other comments which are “off topic” as you mention, tend to have something to do with what is currently going on with discussions from the Saker site and may be added because it might be important or a post isn’t up at that time which it may relate to. The moderators are fully aware of what is going on and policy is across the board.
TR moderation – I’m on your side…I think it was really well handled and the fact that some people like Charles Fasola want nothing but ‘the right’ comments…well, that’s fundamentalism.
China is way too cautious. If they (the Chinese) want to be respected by the Empire they need to show overt decisive and determination. They have the means to do so both military and economic. They should for instance show more open its support for Russian policy. China is well aware that they together with Russia are the main part of the menu to be devoured by the empire and its pack. So I do not understand what they wait for?
I don’t know Oscar. Even when China is quite acquiescent and non-resistant, as now, the Western MSM sewer is still full of garbage about ‘Chinese aggression in the South China Sea’, ‘Chinese ‘human rights violations’ in resisting US trained and financed Uighur terrorists, and ‘Chinese cyber-warfare’ although the US is by far the greatest cyber aggressor of all. But, to openly confront the psychopathic Yankee Reich, before its internal rottenness has weakened it sufficiently, risks a war that the US may very well win. They certainly seem convinced that they would. I imagine that the Chinese elite are pretty well versed in world history and realise that they are being confronted by the most belligerent and genocidal force in world history, and will proceed with extreme caution.
Firstly: thank you for this well sourced report.
That said, and please bear in mind that I dont think it lessens the readability or enjoyability of the piece, but you are getting one thing mixed up:
the RMB Renmimbi (used internally in china) is the currency that will/would be slated for a potential gold standard
the Yuan (currently loosely pegged to the USD) is the one they are trying to add to the SDR basket.
Lastly, my two cents and educated gut feeling on the matter is that the proposal will be dropped like a hot potato in the IMF meeting, shot down like a prize goose taking flight; and all relevant parties know this. They need 75% majority from the controlling body, which unlike Zerohedge I do not believe they will have. This is why China has created all these alternatives, and why so many nominal and real US allies have joined them – as a sort of apologetic gesture for not changing the IMF, yet still not being overtly hostile to Beijing.
Mac
Yuan or RMB? I thought they were one and the same? In my small dealings with the currency, both terms have been used.
In China I found the currency to always be called RMB. In a bank transaction from Australia it is called Yuan.
https://en.wikipedia.org/wiki/Renminbi
The renminbi is the official currency of the People’s Republic of China. The name (simplified Chinese: 人民币; traditional Chinese: 人民幣; pinyin: rénmínbì) literally means “people’s currency.” The yuan (元/圆) (sign: ¥) is the basic unit of the renminbi, but is also used to refer to the Chinese currency generally, especially in international contexts.
Wikipedia. Much maligned because of geo-politics, but often a good source for subjects not influenced by geo-politics.
Clears the air on the origins of Yuan/RMB
IMF Quotas
September 24, 2015
“How quota reviews work
The IMF’s Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member’s quota cannot be changed without its consent. There are two main issues addressed in a general quota review: the size of an overall increase and the distribution of the increase among the members.”
. . .
Doubling of quotas and major realignment of quota shares
On December 15, 2010, the Board of Governors, the Fund’s highest decision-making body, completed the 14th General Review of Quotas, which involved a package of far-reaching reforms of the Fund’s quotas and governance. Once the reform package is approved by member countries (it includes an amendment to the Articles of Agreement that requires acceptance by three-fifths of the members having 85 percent of the total voting power) and implemented, there will be an unprecedented 100 percent increase in total quotas and a major realignment of quota shares. This will better reflect the changing relative weights of the IMF’s member countries in the global economy.
The reform package builds on earlier reforms from 2008, which became effective on March 3, 2011. These strengthened the representation of dynamic economies—many of which are emerging market countries—through ad hoc quota increases for 54 member countries. They also enhanced the voice and participation of low-income countries through a near tripling of basic votes:
Building on the 2008 reforms, the 14th General Review of Quotas will:
double quotas from approximately SDR 238.5 billion to approximately SDR 477 billion (close to $669 billion at current exchange rates),
shift more than 6 percent of quota shares from over-represented to under-represented member countries,
shift more than 6 percent of quota shares to dynamic emerging market and developing countries (EMDCs),
significantly realign quota shares. China will become the third largest member country in the IMF, and there will be four EMDCs (Brazil, China, India, and Russia) among the 10 largest shareholders in the Fund, and
preserve the quota and voting share of the poorest member countries. This group of countries is defined as those eligible for the low-income Poverty Reduction and Growth Trust (PRGT) and whose per capita income fell below $1,135 in 2008 (the threshold set by the International Development Association) or twice that amount for small countries.
A comprehensive review of the current quota formula was completed in January 2013, when the Executive Board submitted its report to the Board of Governors. The outcome of this review will form a basis for the Executive Board to agree on a new quota formula as part of the 15th Review. Work on the 15th Review has been delayed, pending implementation of the 2010 Reforms. In February 2015, the Board of Governors adopted a resolution calling for the completion of the 15th Review by December 15, 2015—the deadline under the Articles of Agreement. [Emphasis added]
http://www.imf.org/external/np/exr/facts/quotas.htm
We’re supposed to think these moves by the IMF and China are good thing when the article admits the following:
This has caused unhappiness amongst the Europeans, who would presumably like to see the IMF with more capital in order to help them with the bail out of Greece and Ukraine and perhaps also with the reconstruction Syria.
The above quote clearly shows that the IMF would use the world’s (and China’s) money to further the so called Empire’s agenda and I’m supposed to think this is a good thing?
So the shameless thieves at the Euro-criminal dominated IMF would like to see the expanded capitalization (provided by China) to be used to further denude & depopulate and re-possess Greece, prop-up and enrich the murdering thieves running Ukraine (who’ll embezzle IMF funds as surely as the sky is blue) and finally use Chinese money to transfer ownership of Syria’s assets (via reconstruction debt) to the same criminals in Europe (UK & France) that destroyed that country in the 1st place.
Why doesn’t this sound like a good thing to me? Letting the IMF bailout Russia’s enemies using Chinese money. Wow, that really sounds like a good plan.
China might be desperate to unload their soon to be devalued $2-Trillion USD currency holdings, but does that imply to the point of screwing Russia and their own long term security? A far better plan would be proceed with alternative BRICS institutions that China, Russia and India helped create.
@Anonymous 10:27
Posted this link on another thread, but seems particularly relevant to your post: Michael Hudson address to a Chinese Marxist university which identifies the harms of financialization as currently operant:
http://www.unz.com/mhudson/the-paradox-of-financialized-industrialization/
The yuan and the renminbi are the same thing.
It is like the British referring to sterling as their currency, and the basic unit of that currency being the pound.
So too the renminbi is the Chinese national currency,and the yuan is the basic unit of that currency, like the pound is in the UK.
More commonly, a yuan is referred to as a kuai, or chunk, much like a dollar is called a buck and a pound is called a quid in colloquial English. Soo in Chinese,”san kuai qian” = three dollars money, three quid, or three bucks cash.
I thought that was the case.
Jeebus…youre right… i wonder why i never checked up on this before, feel like a fool now although I should have guessed as ive never heard any abbreviation for yuan, just RMB…
oh well, we live and learn :) thank you all (not just this post im replying to) for correcting my knowledge gap.
Mac
I’ve (unfortunately) worked a couple of years in the PRC and I’ve never heard the RMB and Yuan being two separate entities. It’s much similar to Sterling and Pound. They’re the same thing, just two different names…
Am I missing something here?
John Rambo, please, can you elucidate why working in China was unfortunate for you?
Engdahl’s book late 2014.
Wall Street and Washington are alarmed that the Chinese might no longer follow the agenda, but decide for themselves what is best for China. They see China as a threat to their global power. The result is growing tension between Beijing and Washington – in the Middle East, Africa, and in Asia. Especially alarming is covert US backing of Japan in a conflict with China over remote Pacific islands. China is beginning to feel escalating hostility, and not only from the Pentagon. Open conflict between the USA and China could deal a death-blow to the fragile world economy. This book explains in clear terms what is at stake if Washington continues to try to turn the Chinese Dragon into an enemy state.
http://www.amazon.com/gp/product/1615772278?keywords=Target%20China%3A%20How%20Washington%20and%20Wall%20Street%20Plan%20to%20Cage%20the%20Asian%20Dragon&qid=1445111364&ref_=sr_1_1&s=books&sr=1-1
Target China: How Washington and Wall Street Plan to Cage the Asian Dragon
I think what is happening with reserve currency is the same as Putins rise in Russia.
He always worked within the system and within the laws of the day to bring about step by step change, rather than being a revolutionary outsider.
I believe this is what China are attempting to do with currency and IMF. Although they have some alternative institutions in place,I think these will only be used to bypass or replace IMF as a method of last resort.
Peter, the one thing wrong with playing by the rules is that the USA, being ‘Exceptional’, grants itself an exemption from following just those ‘rules of the game’ that they demand others must follow.
“It would seem that the Chinese view SDR as an interim solution in their long-term quest to displace the US dollar as reserve currency.”
No. It would be very un-Chinese to even conceive of replacing the dollar with the renminbi (and thereby re-creating the problems and temptations that the reserve dollar has created for the USA.
SDRs are Keynes’ legendary Bancors. They will become the reserve and settlement currency of the future with the renminbi remaining happily a component only.
Mod,
It seems Anonymous is making a point about how the current dollar hegemony is having global effects.
E.g. Russia is totally against GMOs, and Afghanistan is right on her doorstep. She is linked ‘double helix’style with China (as per the Larchmonter analogy) so what is bad for her is not good for China.
It’s the issue of control. If China ‘doesn’t do something’ US military and biotech – neither benign in effect or intent for Russia/China – will invade the Central Asian area.
And it won’t stop there.
Most western financial authors are totally ignorant concerning China’s currency, financial system, and its overall economy, both past and future.
If they were educated in western Accounting, Economics, and/or Financing, then what they were taught, even for their PhD was criminally fraudulent. Every financial statement that was certified by the Accrual Accounting System’s Generally Accepted Accounting Principles (GAAP), which was adopted by the U.S. Securities and Exchange, are Fraudulent. GAAP accepts that certain types of Debt can be classified and reported as income and/or an Asset.
In China all Debt are Liabilities and must be repaid. All Debts can never be classified as an Asset.
The US Fiat Federal Reserve Note (FRN) Dollar is Debt-based, and therefore is an encumbered Liability, which must be repaid.
Fiat money is currency, which derives its value from government regulation or law that makes it legal tender. The term Fiat derives from the Latin (“let it be done”, “it shall be”).
It differs from Commodity money, which is based on a physical asset, often a precious metal such as gold or silver, and has uses other than as a medium of exchange. The Chinese Yuan is NOT Fiat currency, it is a Commodity currency money.
Therefore, the Yuan can never be included into the IMF’s Reserve Currencies, which are all Debt-based Fiat Currencies. China knows this and the IMF also knows this.
The reporting of debt to GDP becomes superfluous when applied to any asset-based unencumbered currency. China can issue almost unlimited Credit without being an encumbered debt and/or Liability.
Kilroy, thank-you for the enlightening information.
Serian Girl, very good sitrep about China’s economics…thank you so much…not boring at all.
Thanks Ann. Actually that last sentence wasn’t supposed to get published (oops).
Personally I’m fascinated with what’s going on financially, so I ‘m really glad to find so many like-minded, smart, well-informed people on this blog.
China got entangled with the AngloZionist economic world order too heavily post-1990.
Now, the Chinese government has very very important tasks pending for execution:
1) turning the country’s economy from “export-driven” into “internal consumption-driven” in order to sustain healthy economy, environment as well as “continuous” prosperity (sudden changes in geopolitics can hit employment and prosperity too hard with implications too many)
2) transforming the global economy from “fiat Dollar-based” into “mix of commodity-based” so that only “real assets” are considered all over globe and global economy can move on sanely (it is just insane now, everything oriented towards enhancing wealth grabbing by 1% of every country including China’s own, all of whom are led by AngloZionist oligarchs/plutocrats)
http://www.reuters.com/article/2015/10/18/us-japan-navy-review-idUSKCN0SC05X20151018
An armada of carriers, cruiser, destroyers and submarines gathered off Japan’s coast on Sunday in a display of naval power that showcased Tokyo’s latest warships and signaled wider engagement by the U.S. Navy in the western Pacific….
……The centerpiece of Japan’s naval line up was the Izumo helicopter carrier, Japan’s biggest warship since World War Two. The 248 meter long (813 feet) flat top, which was commissioned in May, is a highly visible example of how Japan is expanding its military capability to operate overseas.
The Maritime Self Defense Force designates it as a destroyer keeping it within the bounds of a pacifist constitution that forbids Japan from possessing the means to wage war such as force-projecting carriers.
In a signal the Japanese navy’s growing role in Asia will be accompanied by the U.S. fleet’s wider engagement in the region, the U.S. Navy sent Vice Admiral Nora Tyson commander of the powerful Eastern Pacific Third Fleet to join Abe on his ship…..
……………..
There is also a naval exercise in the Bay of Bengal with India, Japan, and US including USS Theordore Roosevelt participating.
And US is talking of sending warships inside the 12 mile limits of Chinas SCS islands…..
Good work Serbian Girl. There is no -source- on this idea, but it is possible that the israel/iran war and the dominoes falling from that could very well lead to a situation that by oct. in 16, the imf and the world may be quite ready for an imf/bric sdr new world order. Of course, the sdr may seem fair, at that time, but no doubt the elites will do whatever they want despite what they say they are doing. Here in the us, we no longer have a free media, so, how is a population to make the rules appy to the elites?