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Get Ready
for World Money
By James
Rickards
March 30,
2020 "Information
Clearing House"
- Since Federal Reserve resources were barely able
to prevent complete collapse in 2008, it should be
expected that an even larger collapse will overwhelm
the Fed’s balance sheet.
That’s
exactly the situation we’re facing right now.
The specter
of a global debt crisis suggests the urgency for new
liquidity sources, bigger than those that central
banks can provide. The logic leads quickly to one
currency for the planet.
The task of
re-liquefying the world will fall to the IMF because
the IMF will have the only clean balance sheet left
among official institutions. The IMF will rise to
the occasion with a towering issuance of special
drawing rights (SDRs), and this monetary operation
will effectively end the dollar’s role as the
leading reserve currency.
The Federal
Reserve has a printing press, they can print
dollars. The IMF also has a printing press and can
print SDRs. It’s just world money that could be
handed out.
The IMF
could function like a central bank through more
frequent issuance of SDRs and by encouraging the use
of “private SDRs” by banks and borrowers.
What
exactly is an SDR?
The SDR is
a form of world money printed by the IMF. It was
created in 1969 as the realization of an earlier
idea for world money called the “bancor,” proposed
by John Maynard Keynes at the Bretton Woods
conference in 1944.
The bancor
was never adopted, but the SDR has been going strong
for 50 years. I am often asked, “If I had 100 SDRs
how many dollars would that be worth? How many euros
would that be worth?”
There’s a
formula for determining that, and as of today there
are five currencies in the formula: dollars,
sterling, yen, euros and yuan. Those are the five
currencies that comprise in the SDR calculation.
The
important thing to realize that the SDR is a source
of potentially unlimited global liquidity. That’s
why SDRs were invented in 1969 (when the world was
seeking alternatives to the dollar), and that’s why
they will be used in the imminent future.
At the
previous rate of progress, it may have taken decades
for the SDR to pose a serious challenge to the
dollar. But as I’ve said for years, that process
could be rapidly accelerated in a financial crisis
where the world needed liquidity and the central
banks were unable to provide it because they still
have not normalized their balance sheets from the
last crisis.
“In that
case,” I’ve argued previously, “the replacement of
the dollar could happen almost overnight.”
Well, guess
what?
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