The SDR Purpose of BRICS
December 17, 2014
By JC Collins
Global markets are showing increasing signs of instability and there are serious concerns about risks to international liquidity building across the spectrum. Exchange rate volatility is deepening with the Russian ruble leading the way and the systemic contagion is spreading around the world, from European and Western banks to stock market crashes in the Middle East.
Oil continues its descent into the $30 to $40 dollar range with a strategically timed announcement by OPEC today, at the peak of the turmoil, stating it will not meet again until June, 2015, ensuring continued instability and lack of confidence in the energy markets.
Trading between the ruble and USD has been halted almost at the same time as Russia’s alternative to the SWIFT system came on line.
Since the beginning of the year we have rehearsed these moments in our minds, not sure if they would happen as we had been discussing, and hoping that they wouldn’t, but knowing full well that the amount of preparation and strategy which has gone into the transition of the international monetary system, from a unipolar structure to a multilateral structure, would eventually materialize in the real world as the Hegelian Dialectic machinations which we are witnessing now.
A look through the headlines on such sites as Zero Hedge will quickly give the reader a birds eye view of the destruction that is now taking place in the international financial system. Much of it is exactly what we have been expecting as a part of the problem, reaction, solution dynamic which will engineer and implement the multilateral financial system.
It was always expected that the transition would require some level of crash or instability. Like massive deflationary periods before, wealth is being transferred to the top as if it was being sucked through a straw. The script which states the USD system is too blame for the instability has been widely distributed beforehand along with the inability of the central banks to increase liquidity in the event of another financial crisis.
Whether any analysts or colorful commenters disagree, the system is shifting towards the multilateral framework that has been developed over the last 5 years, and the implementation is now unfolding as expected. The USD framework is being abandoned as the necessary component of the “reaction stage”, in order for the “solution stage” to manifest as the logical evolution of the financial framework.
The BRICS economies, being Brazil, Russia, India, China, and South Africa, have expanded the structure of the international financial system by implementing the New Development Bank and Contingency Reserve Arrangement. Most analysts and commenters promote the story that the BRICS countries are going to overthrow the Western banks and implement their own gold backed system.
This simply is not true or factual as the BRICS countries themselves are demanding reform to the International Monetary Fund, as agreed in 2010 by all 188 members, including the American administration. And China has been quickly internationalizing the RMB for inclusion into the SDR basket composition by next July, a date which quickly follows the next OPEC meeting in June, 2015.
The blueprint and engineering surrounding the SDR based multilateral financial system can be found in a document titled Enhancing International Monetary Stability, published by the IMF in January, 2011. Interested readers should be highly encouraged and motivated to read and fully understand the document.
In short, the USD system is creating systemic instability and a new multilateral reserve asset is required to balance the international system of finance and create stable liquidity. Some of the methods and components of this transition and new system can be found in the idea of substitution accounts.
The purpose of the substitution accounts is mainly for the exchange of IMF members foreign reserve assets, such as USD, for SDR denominated claims and assets. SDR assets will, at least for a few years, enhance global liquidity and facilitate hedging.
One of the expected risks associated with using SDR denominated assets is the exchange rate disparity, and who will carry this risk. This can be countered by using the SDR as the unit of account within a fixed exchange rate system.
Other methods of reducing the risks associated with SDR denominated liquidity can be found in reporting international transaction data in SDR, and presumably denominating all foreign trade in SDR, which would publish balance of payment statistics in SDR as well.
In line with transitioning away from the USD based system, SDR pegging would encourage a true multilateral global monetary policy and framework which would stand in contrast to the imbalances found in the current system, which is based on the policies of a single country, or economy, being the USD.
In the document titled Enhancing International Monetary Stability, in regards to implementing an SDR based system, the following Costs and Mitigating Costs are quoted:
Costs: SDR-denominated assets would operate in a shallow market at first and therefore would likely carry a liquidity premium. This is estimated initially at around 80–100 basis points, which could render it too costly for any individual country or IFI to take the first step and provide the impetus for an SDR-bond market, particularly in a context of fiscal consolidation pressures.
Mitigating Costs: To enhance initial market liquidity and reduce the premium faced by first movers, it may be useful to have a ‘group’ issuance where a number of countries issue jointly, thus expanding the volume issued, reducing fixed cost to individual issuers and the liquidity premium. Coordination should be aimed at establishing relatively quickly liquid benchmark instruments throughout the maturity spectrum.
These statements are clear indicators of the move away from the USD based system, as the countries that leave the dollar system would need to coordinate and create joint issuance of SDR bonds and liquidity. The BRICS group of countries provide this coordination and the New Development Bank and Contingency Reserve Arrangement provide the means to jointly issue SDR liquidity as a coordinated transition away from the USD system.
The theory that the BRICS economies are moving away from the USD is factual, but only towards the multilateral framework of the SDR, as developed by the central banks themselves and the global institutions. Though countries such as Russia and China may use gold to support their currencies in the interim, it is more likely that gold will become part of the SDR basket composition next July, along with the Chinese renminbi, and possibly the Canadian and Australian dollars.
It is heartrending that so many are losing and will continue to lose as the transition continues. Everything from pension funds, real estate, and possibly even continued devaluations in gold and silver, at least in the short terms, will be bombarded by the liquidity squeeze taking place.
Only last month I was talking with a real estate agent here in Canada and told him that home values are going to come down by approx 20% to 30% because of the deflationary period we have been entering and a decrease in global liquidity, with a bigger drop in oil. The agent almost laughed and stated that BMO and other Canadian banks have been publishing material that stated prices will continue to increase.
Since that weekend oil has decreased another $25 and the Bank of Canada stated last weekend that homes prices in Canada are over valued by 10% to 30%. Considering the turmoil that is taking place around the world, I wonder what that agent is thinking now, especially since the Alberta oil market is taking a big hit and companies are cutting their CapEx budgets for 2015, as well as putting in place hiring freezes, with potential lay offs coming in the New Year.
We are only at the beginning of this transition and expect to see even deeper instability wash upon North American shores in the coming days and weeks. The obvious “event” will be China stepping away from the USD. But how that will coordinate with the substitution accounts and issuance of SDR bonds through the BRICS group is not discernible at this time. It can be expected that SDR bonds will not be issued until the basket composition is changed and the 2010 IMF Reforms, being Plan B, are fully implemented. Plan A, which would have lead to a more constructive transition required the US Congress to pass legislation supporting the 2010 Reforms, which it hasn’t. Let’s hope that the Plan B process doesn’t take until next July. Perhaps an emergency session is in order for the New Year. – JC
http://philosophyofmetrics.com/2014/12/17/the-sdr-purpose-of-brics/#more-1897
Today at 7:02 am by Rocky
» utube 7/25/24 MM&C Iraq Dinar Update - IQD Revaluation-Key Indicators - Deposit Insurance -Arbitra
Today at 7:01 am by Rocky
» utube 7/23/24 MM&C Iraq Dinar-Prime Minister Advisors-Saleh-Al-Nusairi-Facts bringng facts-Reforms
Today at 7:01 am by Rocky
» Al-Jawahiri: Iraq continues to increase its oil production.. Is this OPEC’s role?
Today at 6:58 am by Rocky
» Al-Sudani pressures factions to calm escalation against Americans, seeks Tehran's support
Today at 6:56 am by Rocky
» A 40 km deep void threatens Iraq.. Baghdad and Erbil agreed but "without training, a base and an air
Today at 6:53 am by Rocky
» Iranian sources to Baghdad Today: Tehran has not reached an agreement with Baghdad regarding the ent
Today at 6:51 am by Rocky
» China accuses NATO of stirring up strife in 4 countries, including Iraq
Today at 6:48 am by Rocky
» Within a week.. more than one billion dollars in sales from the Central Bank of Iraq
Today at 6:47 am by Rocky
» "Billions of Dinars" Disbursed to Political Parties from 2024 Budget as "Financial Grants" (Document
Today at 6:44 am by Rocky
» "An ill-considered decision".. The heart of Baghdad is exposed to financial losses
Today at 6:42 am by Rocky
» With documents.. Billions of dinars in grants were disbursed to parties from the current year’s budg
Today at 5:22 am by Rocky
» "He returned from Iraq doubtful." Will Vance change his country's policy in its wars outside its bor
Today at 5:20 am by Rocky
» Quadripartite meeting in Baghdad stresses the need to support the development road project
Today at 5:17 am by Rocky
» The Minister of Oil inaugurates the first phase of the central processing station in the Al-Faiha oi
Today at 5:15 am by Rocky
» Bitcoin regains $67,000 level... and Ethereum jumps 4%
Today at 5:13 am by Rocky
» Oil Products launches a fuel card to provide citizens with kerosene in Nineveh
Today at 5:12 am by Rocky
» "Criticism" haunts the work of the Iraqi negotiating committees in Washington regarding the presence
Today at 5:10 am by Rocky
» Ministerial Swaps: The High Price of Being Speaker
Today at 5:06 am by Rocky
» Hussein Arab: Parliamentary bodies added 2.5 trillion dinars to the governorates in the budget, whic
Today at 5:04 am by Rocky
» Four countries meet in Baghdad to support the development road project
Today at 5:01 am by Rocky
» Call for investigation after the overthrow of a smuggling network in the North Oil Company
Today at 4:59 am by Rocky
» Oil MP rules out oil and gas law
Today at 4:58 am by Rocky
» Rule of Law: General amnesty includes those who committed ordinary crimes, not terrorists
Today at 4:57 am by Rocky
» MP identifies the paragraph that delays the settlement of the salary scale
Today at 4:56 am by Rocky
» The Kurdistan National Party welcomes Al-Sudani's initiative to end the Kirkuk problem
Today at 4:55 am by Rocky
» 42 projects allocated to the second largest district in Basra
Today at 4:54 am by Rocky
» Wasted budgets.. Estimates reach 450 billion dollars and the money of "Iraq's rich" is equal to 9 co
Today at 4:52 am by Rocky
» Within months.. Al-Imar: The amount of loans disbursed amounted to about 750 billion dinars
Today at 4:49 am by Rocky
» $100 million Iraq's citrus imports in 6 months
Today at 4:48 am by Rocky
» Pilot plan in Erbil: Electricity for all citizens within 24 hours
Today at 4:46 am by Rocky
» Contrary to expectations: The Iraqi passport is in its best condition in 8 years
Today at 4:45 am by Rocky
» Parliamentary exclusion of the legislation of the oil and gas law during the current year
Today at 4:44 am by Rocky
» The National Union announces to the region’s employees: The salary crisis has ended after linking it
Today at 4:43 am by Rocky
» Immigration confirms the increase in the number of people wishing to return to their original areas
Today at 4:42 am by Rocky
» Baghdad.. Launching a link to work as a researcher in the general population census
Today at 4:40 am by Rocky
» Three suspects arrested for receiving 6 million dinars in exchange for completing a retirement trans
Today at 4:40 am by Rocky
» Report highlights Trump's vice president's shifts in Iraq war
Today at 4:36 am by Rocky
» Al-Sudani stresses the importance of putting the interests of Kirkuk people first in any agreement b
Today at 4:35 am by Rocky
» Due to illusory political achievements.. Warnings of Sinjar people being displaced again - Urgent
Today at 4:34 am by Rocky
» Warning and fears of the exploitation of political money in the Kurdistan Parliament elections
Today at 4:33 am by Rocky
» During a week.. more than 15 billion dinars in "non-oil" imports for two governorates and two local
Today at 4:31 am by Rocky
» Mazhar Muhammad Salih points to the weakness of the cash credit ratio in private banks
Today at 4:30 am by Rocky
» Parliamentary efforts to amend the investment law to improve the Iraqi economy and attract foreign c
Today at 4:28 am by Rocky
» Economist reveals reasons for rising prices of goods and products: lack of government support and ex
Today at 4:27 am by Rocky
» Al-Halbousi imposes “difficult conditions” on the ruling coalition
Today at 4:25 am by Rocky
» Requesting 25 million to close the case of a drug suspect.. Integrity arrests an impersonator in a “
Today at 4:22 am by Rocky
» Government attempts to rescue Iraqi industry from imports.. Will local support succeed?
Today at 4:21 am by Rocky
» Political parties control the sale of the dollar.. A new threat to the stability of the national eco
Today at 4:20 am by Rocky
» Water scarcity and environmental degradation threaten cotton in Iraq.. Farmers demand urgent solutio
Today at 4:20 am by Rocky
» In a Security Council session, Iraq calls for an immediate ceasefire in Gaza
Today at 4:16 am by Rocky
» Stability of dollar prices in local markets
Today at 4:14 am by Rocky
» New jobs in Baghdad
Today at 4:11 am by Rocky
» Alsumaria News publishes the link to apply for "new jobs"
Today at 4:09 am by Rocky
» Parliamentary Investment: Amending the Investment Law will eliminate exceptions
Today at 4:08 am by Rocky
» Dollar exchange rates in Iraqi stock exchanges
Today at 4:07 am by Rocky
» MMK&C 7/21/24 Government Advisor: Adopting auditing of foreign transfers contributes
Yesterday at 7:09 am by Rocky
» MM&C 7/21/24 Proposed measures to address the rise of the dollar
Yesterday at 7:08 am by Rocky
» Iraq ranks high in income inequality among citizens
Yesterday at 7:04 am by Rocky
» Within months.. Al-Imar: The amount of loans disbursed amounted to about 750 billion dinars
Yesterday at 7:00 am by Rocky
» Parliamentary Integrity confirms the start of opening the files of former officials
Yesterday at 6:58 am by Rocky
» Iraq and the German Development Bank sign an amendment to the loan agreement to finance a number of
Yesterday at 6:57 am by Rocky
» Regional oil...between export ban and smuggling suspicions
Yesterday at 6:51 am by Rocky
» Economist: Faw Port is an important step towards sustainable economic development and a major gatewa
Yesterday at 6:49 am by Rocky
» Parliamentary Investment "Mocks" Solution to Housing Crisis in Complexes: "Joke" and Government Must
Yesterday at 6:46 am by Rocky
» Multi-million dollar agreement to support Iraqi agriculture
Yesterday at 6:44 am by Rocky
» From Chaos to Law.. The Crowd Breathes with the First Reading of “Service and Retirement”
Yesterday at 5:19 am by Rocky
» Oil Minister inaugurates first phase of associated water injection project in Rumaila field
Yesterday at 5:16 am by Rocky
» Water Resources: The reality of desertification in Iraq is better than before
Yesterday at 5:16 am by Rocky
» Disappearance of 50,000 Pakistani tourists in Iraq.. Government position: We will start the investig
Yesterday at 5:14 am by Rocky
» Iraq reveals the value of its agricultural exports: 400 thousand tons in 6 months
Yesterday at 5:13 am by Rocky
» Electricity directs the rapid implementation of the solar power plant project in Khanaqin
Yesterday at 5:12 am by Rocky
» Worth $20 billion.. Iraq is second in trade exchanges with Iran
Yesterday at 5:11 am by Rocky
» (56) megawatt card.. Opening of the gas power plant in Majnoon field
Yesterday at 5:10 am by Rocky
» Parliamentary Committee: Amending this law will address many problems
Yesterday at 5:08 am by Rocky
» Iraq and the German Development Bank (KFW) sign an amendment to the loan agreement to finance a numb
Yesterday at 5:07 am by Rocky
» Finance discusses regulating the work of government banks with international auditing firm Ernst & Y
Yesterday at 5:05 am by Rocky
» The Prime Minister receives the approval of the coalition of companies that won the investment oppor
Yesterday at 5:03 am by Rocky
» US Ambassador: We helped Iraq with $3.6 billion in the displaced file
Yesterday at 5:00 am by Rocky
» In two stages.. The Minister of Oil inaugurates the associated water injection project in the Rumail
Yesterday at 4:59 am by Rocky
» Who manipulated the budget settings? Adding 15 trillion dinars for the benefit of the people or for
Yesterday at 4:58 am by Rocky
» Statement of the Iraqi Communist Workers’ Party on the “Personal Status Law Amendment” Project
Yesterday at 4:56 am by Rocky
» The American arm has become short.. Iraq will eradicate the “SDF” from Syria
Yesterday at 4:55 am by Rocky
» The idea of the “Sunni region” is maturing again.. The insistence of Western politicians collides
Yesterday at 4:53 am by Rocky
» Iraq takes its share of negative development and faces “electronic blackmail”
Yesterday at 4:52 am by Rocky
» Education in Iraq: Between the lack of schools and the delay in providing supplies
Yesterday at 4:51 am by Rocky
» Economist lays out solutions to get rid of the dollar’s dominance: moving towards a currency baske
Yesterday at 4:50 am by Rocky
» The Presidency of the Republic issues a special pardon for a bank manager accused of embezzlement
Yesterday at 4:49 am by Rocky
» The Ministry of Agriculture reveals the volume of its exported products in numbers
Yesterday at 4:47 am by Rocky
» Transport reveals its latest steps towards lifting the European ban on Iraqi Airways
Yesterday at 4:46 am by Rocky
» "Doors are closed" in Parliament.. Will political pressures result in the election of a new presiden
Yesterday at 4:45 am by Rocky
» Prime Minister's Advisor: Kirkuk government formation will be decided within 20 days
Yesterday at 4:44 am by Rocky
» US dollar exchange rate stability in Baghdad
Yesterday at 4:43 am by Rocky
» Reconstruction: New applications for Housing Fund loans will be opened when liquidity is available
Yesterday at 4:42 am by Rocky
» The US Federal Reserve adopts a new strategy towards Iraq.. The dollar is threatened with rising to
Yesterday at 4:40 am by Rocky
» First government comment on the leakage of 50 thousand Pakistanis in Iraq
Yesterday at 4:38 am by Rocky
» Parliamentary Integrity Committee announces keeping the session hosting the Minister of Water Resour
Yesterday at 4:37 am by Rocky
» Parliamentarian reveals the reason for the recent talk about the Sunni region
Yesterday at 4:35 am by Rocky
» Secrets of the Coordination Framework meeting with the Sunni forces.. Three proposals to resolve the
Yesterday at 4:33 am by Rocky