China and Special Drawing Right
(SDR's)
By: Ricardo C. Amaral
EconoMonitor - July 9, 2009
“Brazil, China and the New Asian
Currency”
Author: Ricardo C. Amaral
...I don’t understand why China is
giving any consideration regarding the International Monetary Fund’s
Special Drawing Right (SDR) and even suggesting that the IMF turn the
SDR’s into a widely traded new reserve currency. That does not make
sense to me, since for all practical purposes that system is still
just a basket of few currencies representing the world of yesterday,
and the US dollar is still at the center of that arrangement.
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RGE Monitor New Asian Currency
Comments 071409
I have no idea why China is even
contemplating the issue regarding Special Drawing Rights (SDR’S)?
The SDR’s were created for the world
of yesterday, and even then they did not had much use for that
special set up. If the creating of SDR’s were a good idea, other
than its very limited use – then SDR’s would have become a major
portion of most countries foreign exchange reserves.
I don’t know why China is wasting
time looking at that solution, since for all practical purposes that
system is based on the US dollar.
In the world of today, (and in the
future for that matter) we have trillions of US dollars in
international transactions happening every day – and I can’t see,
and it does not make sense to me how a international monetary system
would work with SDR’s becoming a major player in international
finance.
“The SDR is an international reserve
asset, created by the IMF in 1969 to supplement the existing official
reserves of member countries. SDRs are allocated to member countries
in proportion to their IMF quotas. The SDR also serves as the unit of
account of the IMF and some other international organizations. Its
value is based on a basket of key international currencies.
…The SDR is neither a currency, nor a
claim on the IMF. Rather, it is a potential claim on the freely
usable currencies of IMF members.”
Source:
IMF - A Factsheet - February 2009
IMF - A Factsheet - February 2009
You can read about Special Drawing
Rights (SDR’S) also at:
No new SDRs had been created between
1981 and the 2008 banking crisis: Only 21.4 billion of them currently
exist (equal in value to $31.9 billion) On 2 April 2009, the G-20
authorized the IMF to issue $250 billion in new SDRs to augment the
foreign reserves of IMF members and quickly channel resources into
emerging economies. Increases in the reserves of some emerging
economies will be substantial i.e. South Korea’s will grow by $3.4
billion, India’s by $4.8 billion, Brazil’s by $3.5 billion,
Russia’s by $6.9 billion and China’s by $7.3 billion.
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