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’Dealing with a global Triffin dilemma
We love a little bit of Triffin’s dilemma on FT Alphaville.
It refers to the idea that whoever has reserve currency status thrust upon them, is simultaneously lumbered with the burden of supplying the world with extra currency — thus entrapping themselves to a permanently indebted existence.
What makes a reserve currency?
Here’s an interesting way of looking at the market’s current obsession with public debt and reserve currency status.
Consider, for example, that a large amount of public debt is an absolute necessity to ensure a functional monetary system and a reserve currency position.
$8,000bn speaks reserve currencies
The dollar is down, the euro is out, and SDRs are in. Results from UBS’s reserve management survey, canvassing institutions with a collective $8,000bn of assets:
The US debt to GDP balance, and China
The latest report from Radiant Asset Management’s David Ross on the future of the dollar and China makes for a very interesting read.
Ross starts off by making the point that when you adjust the US deficit for growth and spending,
The gold for SDR swap confirmed!
Back when gold began its first sharp ascent over $1000 per troy ounce in September, we at FT Alphaville wondered what, if anything, the move might have had to do with the IMF’s jumbo issue of $250bn worth of special drawing rights.
The SDR effect on the dollar, and gold
Here’s a small sample of what the world’s central banks are doing with their newly inflated SDR reserves.
Mexico, via Bloomberg:
The $4 billion in special drawing rights Mexico is getting from the International Monetary Fund is providing the central bank more room to continue selling dollars while reaching its goal of ending this year with international reserves around last year’s levels,
What’s driving paper gold?
Gold madness is under way, and no one — as far as we can tell — has a good explanation as to why:
Here are some observations and views we’ve come across:
MF Global noted a potential knock-on effect from the soon-to-be closed DB double long crude oil fund,
SDR exchange lift-off
Last Friday, the IMF pumped $250bn into foreign-exchange reserves worldwide, as called upon to do by G20 leaders last April.
It used the mechanism of a special-drawing-right issue to achieve the task.
Reserving the euro
Talk of reserve currencies and the possible decline of the dollar’s supremacy has been heated over the past few months, with China and Russia leading the fighting talk. With market-watchers awaiting more mention of the debate at this week’s G8 meeting,
Who wants to be a dollar trillionaire?
UBS asked an audience of more than 80 institutions with collective assets under management of about $5,500bn:
Related link:
Russia’s win win – FT Alphaville
Russia’s win win
We questioned on Wednesday just how wise it was of Russia to be talking down the dollar ahead of switching US Treasuries into alternative non-dollar denominated investments, as it indeed was claiming it would – surely the process would depreciate its assets?
Well,
Another illogical Russian smackdown for US treasuries
Next week, Russia hosts a meeting between the leaders of Brazil, India and China in the Russian city of Yekaterinburg, at which it is widely expected the dollar’s dominant role will be hotly contested.
SDRs, China and UK commercial real estate
Jim O’Neil, head of global economic research at Goldman Sachs, writes on China and the yuan in Thursday’s Telegraph:
I’ve concluded that Mr Zhou is telling us that China is closer than many think to letting the yuan become part of the SDR.
What can $250bn SDRs get you?
So the G20 has decided to pump an extra $250bn into the Special Drawing Rights (SDR) system of the IMF. The actual methodology of how this will be done is yet to be revealed (will quotas be reallocated? Will everyone simply get a fresh top-up equal to 10x their original? etc).
Soros gets his way with the G20
The G20 communiqué is officially out.
Among the collective promises to persecute stamp-out tax havens, is this interesting little decision on IMF special drawing rights (SDRs):
19. We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity,
Global currency, it COULD happen
Who would have thought, even a couple of months ago, that calls for a global currency might be taken seriously as a solution to the current financial crisis?
Yet, the concept is gaining incredible momentum.
Geithner not wrong, simply misunderstood
Poor old Tim Geithner, he can’t seem to earn the trust of the markets whatever he does. Wednesday saw the US Treasury secretary rattle forex traders specifically with comments about China’s proposals on special drawing rights.
Two very different SDR scenarios, says Rogoff
With the IMF’s special drawing rights firmly on the table as the means for some sort of world helicopter cash drop or the basis of new global reserve currency, it’s probably worth pointing out how they might feature in the IMF’s radical overhaul in lending procedures as announced on Tuesday.
Is a global super-currency on the agenda?
It started out as a call from the likes of George Soros and Ted Truman.
But the IMF’s little known international accounting system of special drawing rights [SDRs] has now been propelled straight into the limelight thanks to both China and Russia.
G20: Discussing the shape of international reserves to come
George Soros, general investment luminary and chairman of Soros Fund Management, writes in Monday’s FT how the forthcoming Group of 20 meeting in London on April 2nd will likely be a make-or-break event.
One giant drop of cash for mankind?
European Union ministers are reportedly going to back a call from the IMF to double its funds to $500bn when they meet at this weekend’s G20 meeting in London.
Raising funds, of course, could be done in two ways.
=XDR (or, one special drawing right)
With IMF special drawing rights increasingly being pitched as a possible solution to the financial crisis, we thought it might be worth putting up a historical chart of the so-called ‘paper-gold’ currency.
We don’t want no stimulus plan (or, the case against Keynes)
It was bound to happen – the return of the anti-Keynesians en force. Their case: mass government stimuli are no solution to a) a global crisis and b) a crisis of debt that transcends all previous crises of debt in terms of size.