Economics, Free Pom
Reader Comments On "After The SDR Announcement – Now What?"
Lint To Earlier Post
Adwaladr The presser:
http://ift.tt/1OA4J47
Steve Henningsen I must admit JC that I was surprised the dollar weighting remained relatively unchanged. I had expected it to drop at least 5%. Seems the Euro may take the brunt of the depreciation before the dollar does further down the line.
JC Collins Maybe that would have been the other 4% to 6% which would have put the RMB weight at 14% to 16%, which was originally suggested. Negotiations.
Dripfood JC, could this also be related to allowing ECB some more QE and negative rates, without it affecting the SDR rate too much for the coming 5 years?
JC Collins That is possible. Though I think alternatives to QE will soon be emerging. It is my conclusion that it will take all three reserve currencies, the dollar, euro, and renminbi to help balance the international monetary system. The euro currency and zone will be interesting to watch over the next few years.
~~~
Reader Comments On "After The SDR Announcement – Now What?"
Lint To Earlier Post
Adwaladr The presser:
http://ift.tt/1OA4J47
Steve Henningsen I must admit JC that I was surprised the dollar weighting remained relatively unchanged. I had expected it to drop at least 5%. Seems the Euro may take the brunt of the depreciation before the dollar does further down the line.
JC Collins Maybe that would have been the other 4% to 6% which would have put the RMB weight at 14% to 16%, which was originally suggested. Negotiations.
Dripfood JC, could this also be related to allowing ECB some more QE and negative rates, without it affecting the SDR rate too much for the coming 5 years?
JC Collins That is possible. Though I think alternatives to QE will soon be emerging. It is my conclusion that it will take all three reserve currencies, the dollar, euro, and renminbi to help balance the international monetary system. The euro currency and zone will be interesting to watch over the next few years.
~~~
Steve Henningsen I guess the IMF remains the US’s lapdog.
Rodriguez Perez In this new world of higher interest rates, I suppose that China will be an exception if its ecomonic is oriented to comsume and imports instead of to produce and export, and because its rates are high already. Am I wrong, JC? Best regards and congratulations once more.
JC Collins The exchange rates will also factor into this. China will likely still export, but it will be more expensive goods and financial products denominated in RMB.
Safenet Hi J.C, does the almost unchanged weight of USD guarantee that China will have to drop the peg until October 2016? Otherwise more than half of the basket will be Usd-directly and indirectly-.Maybe that was the plan all along
JC Collins I’m expecting that China will be incrementally widening the trade band with the dollar. The more RMB liquidity grows, the more the PBoC will feel comfortable widening the trading band. The initial weights in the SDR will likely lag behind the exchange rate and liquidity market of the renminbi.
Eventually the peg will be removed or become irrelevant. It wouldn’t surprise me if there was another SDR review before 2020. It has been done before, especially when the euro market took hold and expanded.
Alan Press Briefing: IMF Managing Director Christine Lagarde says Executive Board Includes Chinese Renminbi in SDR Basket Video Link – November 30, 2015
http://ift.tt/1NEcitm
JC Collins Thanks for the link pal.
Alan No worries mate. Every article of yours JC grabs my attention and enthusiasm for further research. Maybe I read too much but I am finding it increasingly easier to support your material. Period.
In fact I am increasingly surprised that you don’t have more subscribers contributing even more direct confirmation to each new article — as time passes i.e. with either standard news links or official documentation with regards to whitepapers, studies and other research etc. — than you do those that choose to lambaste your analysis.
As a fellow POM subscriber I really appreciate those of you that choose to sideline any particular bias [perhaps that’s not the right word] in favour of good sound quality research. THANK YOU for the links that you provide. It helps immensely — let’s let the reader decide!
I am forever grateful because It gives me the opportunity [as a reader of this Pom material] to better qualify my own personal viewpoint — of any particular issue –with a more rounded, flexible and adaptive understanding for the multiple possibilities that tempt our collective future.
Jared your patience in finding the time to work, sleep, love your family and love this POM family should be recognized and appreciated. I do both right now. To you and those of you that find it quite easy to contribute — Bravo :)
Together, let’s decide to provide more research and less opinion. I promise to lift my game and do my best. Onward!
JC Collins Thanks Alan.
Chuck It seems the end of history has arrived. The American Exceptionalists have been brought to heel and the final remaining major non-Western nation is being integrated into the existing power structure.
I predict the “Clash of Civilizations” between Islam and the West will end with the fall of the House of Saud; just as the Cold War ended with the collapse of the Soviet Union.
JC Collins Chuck, I agree with that assessment. I would also add Turkey to that as well.
neal poole Well done JC and POM community
marilyn fox Is this chap a spin doctor? https://youtu.be/NLDTsz31QAU
JC Collins Maybe not a spin doctor, but any conversation surrounding the IMF decision which does not discuss reserve accumulation and diversification, or a growing RMB liquidity market, is an incomplete conversation as far as I’m concerned. Not everyone can grasp this aspect of the monetary system.
Tony Graupp Greetings JC; The thing I still don’ t understand or comprehend is how is all this going to affect me here at home….
I wouldn’t know an SDR if I saw one, and certainly wouldn’t know what to do with it if I had one….
As far as I can see, this is all just been about soverigns working out their monetary differences amongst themselves…
As far as I can see, the SDR is just another piece of paper that somebody says is worth.. “X”… [Dollar, Yen, Euro, Pound, or RMB] and can ‘only’ be traded amongst themselves….
Is it a store of value ?? [SOV}
Can it be used to buy things ???
Can it be used to pay off debt ???
After reading many articles, I’m still at a complete loss ???
Woooisme!!! Woooisme !!!! Take Care Tony
Dane Hello Tony. Here is one more article that seems to answer most if not all of your questions. “FACTSHEET Special Drawing Rights (SDRs) November 30, 2015”
http://ift.tt/18b67p1
Tony Graupp Greetings Tom; Thank for your input about the SDR’s It seems to explain how you can trade one ‘fake’ currency [the SDR’s] for other ‘fake’ currencies…[the US dollar, the Euro, Yen or GBP] and come out a winner…. Aren’t these games fun…. Take Care Tony
Tim @ Tony: I mentioned a similar idea to JC on another blog I read; Someone had posted JC’s free work on this particular blog I read.
JC writes primarily on the level of the (what I referred to as) macro-macro. For the life of me, I can’t figure out what difference it makes to me if the SDR is weighted this way or that way with the various currencies in the world.
I work in construction. What about the commercial lenders and developers that make our projects possible? If the RMB is included in the SDR, are they still able to finance and build their projects?
JC said he appreciated my comments, and indicated he was going to start including some info for those of us at a low level.
Sounds like maybe you’re in a similar position (in terms of understanding) as I am.
JC Collins Tim, see my response to Tony.
shawn Michael Not sure this is the best article to answer your questions but better than anything I could say. What you need to know about China’s inclusion in IMF currency basket
http://ift.tt/1NsE3ig
JC Collins Thanks for the link Shawn. Good read.
JC Collins Tony, the SDR is not yet a store of value as a stand alone asset. It is a claim on currency which is exchanged through quota amounts. This will change down the road as the SDR system grows and new issuance is created through allocation and substitution.
The SDR cannot be used to purchase things. It is only available for central banks and some multilateral institutions.
It cannot be used to pay off debt. But it may be used down the road under a sovereign debt restructuring process.
The inclusion of the renminbi into the SDR is symbolic in that it has elevated the Chinese currency to a higher status than it had two days ago. This step is important because it will allow for an increase in RMB denominated reserves by central banks. The AIIB and BRICS Development Bank will also be issuing infrastructure development loans denominated in RMB.
Right now this is more about the renminbi and less about the SDR. The USD which has accumulated in the foreign exchange reserve accounts needs to be reduced so that the dollar can depreciate and the US can begin to increase interest rates and reduce its debt-to-GDP ratio. Lower dollar means more exports, which means more jobs.
The renminbi will facilitate a diversification of these reserves.
The multilateral investment strategies which will develop from this change are where the small guys like us can benefit. Understanding these opportunities are a must. Some articles which have already been posted here on POM surrounding this are the following:
Hedging the Coming US Dollar Depreciation (requires subscription)
The Year of the Monkey – About the coming commodities super cycle. (requires subscription)
The Mystery of the October SDR – About the changing money market rules. (requires subscription)
Tony Graupp Greetings JC Well,in the article listed below, Christine Lagard refers to the SDR as the “”Currency of Currencies””
Also, in an older article I read in the Economist Magazine, they referred to the SDR as a ‘Synthetic paper currency””
In my understanding, the use of the word ‘currency’ implies that you use it to buy or trade for things …and yet the SDR’s CANNOT be used for that…. MAYBE,,,,JUST MAYBE….that is their whole intention down the road to have a ONE WORLD CURRENCY….The SDR’s….
One last question;; Where does the Bank of International Settlements fit in all this ???
NOTHING is going to happen without their consent !!! Here’s the article I mentioned;
http://ift.tt/1lXFOOy
Rodriguez Perez In this new world of higher interest rates, I suppose that China will be an exception if its ecomonic is oriented to comsume and imports instead of to produce and export, and because its rates are high already. Am I wrong, JC? Best regards and congratulations once more.
JC Collins The exchange rates will also factor into this. China will likely still export, but it will be more expensive goods and financial products denominated in RMB.
Safenet Hi J.C, does the almost unchanged weight of USD guarantee that China will have to drop the peg until October 2016? Otherwise more than half of the basket will be Usd-directly and indirectly-.Maybe that was the plan all along
JC Collins I’m expecting that China will be incrementally widening the trade band with the dollar. The more RMB liquidity grows, the more the PBoC will feel comfortable widening the trading band. The initial weights in the SDR will likely lag behind the exchange rate and liquidity market of the renminbi.
Eventually the peg will be removed or become irrelevant. It wouldn’t surprise me if there was another SDR review before 2020. It has been done before, especially when the euro market took hold and expanded.
Alan Press Briefing: IMF Managing Director Christine Lagarde says Executive Board Includes Chinese Renminbi in SDR Basket Video Link – November 30, 2015
http://ift.tt/1NEcitm
JC Collins Thanks for the link pal.
Alan No worries mate. Every article of yours JC grabs my attention and enthusiasm for further research. Maybe I read too much but I am finding it increasingly easier to support your material. Period.
In fact I am increasingly surprised that you don’t have more subscribers contributing even more direct confirmation to each new article — as time passes i.e. with either standard news links or official documentation with regards to whitepapers, studies and other research etc. — than you do those that choose to lambaste your analysis.
As a fellow POM subscriber I really appreciate those of you that choose to sideline any particular bias [perhaps that’s not the right word] in favour of good sound quality research. THANK YOU for the links that you provide. It helps immensely — let’s let the reader decide!
I am forever grateful because It gives me the opportunity [as a reader of this Pom material] to better qualify my own personal viewpoint — of any particular issue –with a more rounded, flexible and adaptive understanding for the multiple possibilities that tempt our collective future.
Jared your patience in finding the time to work, sleep, love your family and love this POM family should be recognized and appreciated. I do both right now. To you and those of you that find it quite easy to contribute — Bravo :)
Together, let’s decide to provide more research and less opinion. I promise to lift my game and do my best. Onward!
JC Collins Thanks Alan.
Chuck It seems the end of history has arrived. The American Exceptionalists have been brought to heel and the final remaining major non-Western nation is being integrated into the existing power structure.
I predict the “Clash of Civilizations” between Islam and the West will end with the fall of the House of Saud; just as the Cold War ended with the collapse of the Soviet Union.
JC Collins Chuck, I agree with that assessment. I would also add Turkey to that as well.
neal poole Well done JC and POM community
marilyn fox Is this chap a spin doctor? https://youtu.be/NLDTsz31QAU
JC Collins Maybe not a spin doctor, but any conversation surrounding the IMF decision which does not discuss reserve accumulation and diversification, or a growing RMB liquidity market, is an incomplete conversation as far as I’m concerned. Not everyone can grasp this aspect of the monetary system.
Tony Graupp Greetings JC; The thing I still don’ t understand or comprehend is how is all this going to affect me here at home….
I wouldn’t know an SDR if I saw one, and certainly wouldn’t know what to do with it if I had one….
As far as I can see, this is all just been about soverigns working out their monetary differences amongst themselves…
As far as I can see, the SDR is just another piece of paper that somebody says is worth.. “X”… [Dollar, Yen, Euro, Pound, or RMB] and can ‘only’ be traded amongst themselves….
Is it a store of value ?? [SOV}
Can it be used to buy things ???
Can it be used to pay off debt ???
After reading many articles, I’m still at a complete loss ???
Woooisme!!! Woooisme !!!! Take Care Tony
Dane Hello Tony. Here is one more article that seems to answer most if not all of your questions. “FACTSHEET Special Drawing Rights (SDRs) November 30, 2015”
http://ift.tt/18b67p1
Tony Graupp Greetings Tom; Thank for your input about the SDR’s It seems to explain how you can trade one ‘fake’ currency [the SDR’s] for other ‘fake’ currencies…[the US dollar, the Euro, Yen or GBP] and come out a winner…. Aren’t these games fun…. Take Care Tony
Tim @ Tony: I mentioned a similar idea to JC on another blog I read; Someone had posted JC’s free work on this particular blog I read.
JC writes primarily on the level of the (what I referred to as) macro-macro. For the life of me, I can’t figure out what difference it makes to me if the SDR is weighted this way or that way with the various currencies in the world.
I work in construction. What about the commercial lenders and developers that make our projects possible? If the RMB is included in the SDR, are they still able to finance and build their projects?
JC said he appreciated my comments, and indicated he was going to start including some info for those of us at a low level.
Sounds like maybe you’re in a similar position (in terms of understanding) as I am.
JC Collins Tim, see my response to Tony.
shawn Michael Not sure this is the best article to answer your questions but better than anything I could say. What you need to know about China’s inclusion in IMF currency basket
http://ift.tt/1NsE3ig
JC Collins Thanks for the link Shawn. Good read.
JC Collins Tony, the SDR is not yet a store of value as a stand alone asset. It is a claim on currency which is exchanged through quota amounts. This will change down the road as the SDR system grows and new issuance is created through allocation and substitution.
The SDR cannot be used to purchase things. It is only available for central banks and some multilateral institutions.
It cannot be used to pay off debt. But it may be used down the road under a sovereign debt restructuring process.
The inclusion of the renminbi into the SDR is symbolic in that it has elevated the Chinese currency to a higher status than it had two days ago. This step is important because it will allow for an increase in RMB denominated reserves by central banks. The AIIB and BRICS Development Bank will also be issuing infrastructure development loans denominated in RMB.
Right now this is more about the renminbi and less about the SDR. The USD which has accumulated in the foreign exchange reserve accounts needs to be reduced so that the dollar can depreciate and the US can begin to increase interest rates and reduce its debt-to-GDP ratio. Lower dollar means more exports, which means more jobs.
The renminbi will facilitate a diversification of these reserves.
The multilateral investment strategies which will develop from this change are where the small guys like us can benefit. Understanding these opportunities are a must. Some articles which have already been posted here on POM surrounding this are the following:
Hedging the Coming US Dollar Depreciation (requires subscription)
The Year of the Monkey – About the coming commodities super cycle. (requires subscription)
The Mystery of the October SDR – About the changing money market rules. (requires subscription)
Tony Graupp Greetings JC Well,in the article listed below, Christine Lagard refers to the SDR as the “”Currency of Currencies””
Also, in an older article I read in the Economist Magazine, they referred to the SDR as a ‘Synthetic paper currency””
In my understanding, the use of the word ‘currency’ implies that you use it to buy or trade for things …and yet the SDR’s CANNOT be used for that…. MAYBE,,,,JUST MAYBE….that is their whole intention down the road to have a ONE WORLD CURRENCY….The SDR’s….
One last question;; Where does the Bank of International Settlements fit in all this ???
NOTHING is going to happen without their consent !!! Here’s the article I mentioned;
http://ift.tt/1lXFOOy
JC Collins Tony, that is correct. The SDR will be used as a currency down the road. Planting the meme now is an important step in that process. I’ve written extensively that the SDR will transition into the bancor in the same manner which the European Currency Unit (ECU), which was a basket of weighted currencies like the SDR, was changed into the actual euro currency.
The challenge is arranging a proper composition of currencies with sustainable weightings which can be locked down to form the international currency, which will be called the bancor. Use the search tool on POM to lookup the term “bancor” and “currency unit”.
Speedspirit JC congrats on your ability to decipher the economic policy of the G20.
Curtis I’m reading “The Age of Oversupply” by Daniel Alpert. The United States in the last few decades shifted away from the idea “there is no free lunch” to ‘spend now, foot the bill later’. There is almost irony in how the liquidity crisis came to be. Finally, we take the first steps on solving the financial crisis which I cannot claim to fully understand. The US has problems namely debt.
The public is not really aware that a fundamental shift in power in scheduled to take place Jan. 1, 2016. Will mass media finally explain this to the laymen? Will there be a major shift in economic policy to increase demand rather than supply?
Christine Pretkel How can the dollar be seen to depreciate with an increase in interest rates, the safe haven dollar investment seems attractive to many who are looking at negative interest rates?
JC Collins Christine, you can read about that at the following link:
Fed Rate Hike in a Changing World (requires subscription)
Greg Steube JC – Just to be certain I see this picture clearly, depreciation of the dollar will drive the resurgence of U.S. manufacturing by reducing the cost of labor. In other words, most of the costs will be born by the sellers of labor rather than the owners of capital. As it always has been.
The major effect people like Tony (and myself) will experience is that while we are able to find jobs, the purchasing power of our salaries may be 20% less than it was in times past.
http://ift.tt/1NsE1ag
Recaps Note: We only post articles from the Free Side of Philosophyofmetrics but there will usually be links that reference other articles that require subscription to access – We apologize for any inconvenience.
The challenge is arranging a proper composition of currencies with sustainable weightings which can be locked down to form the international currency, which will be called the bancor. Use the search tool on POM to lookup the term “bancor” and “currency unit”.
Speedspirit JC congrats on your ability to decipher the economic policy of the G20.
Curtis I’m reading “The Age of Oversupply” by Daniel Alpert. The United States in the last few decades shifted away from the idea “there is no free lunch” to ‘spend now, foot the bill later’. There is almost irony in how the liquidity crisis came to be. Finally, we take the first steps on solving the financial crisis which I cannot claim to fully understand. The US has problems namely debt.
The public is not really aware that a fundamental shift in power in scheduled to take place Jan. 1, 2016. Will mass media finally explain this to the laymen? Will there be a major shift in economic policy to increase demand rather than supply?
Christine Pretkel How can the dollar be seen to depreciate with an increase in interest rates, the safe haven dollar investment seems attractive to many who are looking at negative interest rates?
JC Collins Christine, you can read about that at the following link:
Fed Rate Hike in a Changing World (requires subscription)
Greg Steube JC – Just to be certain I see this picture clearly, depreciation of the dollar will drive the resurgence of U.S. manufacturing by reducing the cost of labor. In other words, most of the costs will be born by the sellers of labor rather than the owners of capital. As it always has been.
The major effect people like Tony (and myself) will experience is that while we are able to find jobs, the purchasing power of our salaries may be 20% less than it was in times past.
http://ift.tt/1NsE1ag
Recaps Note: We only post articles from the Free Side of Philosophyofmetrics but there will usually be links that reference other articles that require subscription to access – We apologize for any inconvenience.
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