USD $/IMF SDR Valuation 10/23

2 Responses to USD $/IMF SDR Valuation 10/23

1. 

   frances snoot

   25/10/2009 at 17:06

   “The value of the SDR is calculated by averaging a “basket” of four major world currencies – the US dollar, UK pound, euro, and Japanese yen – in a weighted formula that is re-evaluated every five years to ensure it represents the relative importance of each. But this unit only exists as an accountant’s tool, a formula. No SDRs are printed; you can’t hold one in your hand.

   The IMF does not require that its SDRs be backed by any assets, and they do not represent a claim on the IMF. The assets – the SDRs — are created simply by the will of the board (though large or exceptional allocations may require approval by member governments’ legislatures). They are, in a sense, backed by the consensus of the IMF member governments.

   The SDRs allocated to a particular government are put into its account at the IMF. The government can convert them to hard currency through voluntary arrangements with governments issuing hard currencies, who get additional SDRs in return, and earn interest on any amount above what they received in the general allocations. No conditions are attached to the use of such funds, in sharp contrast to the money the IMF lends to countries in crisis.

   There is a cost, however: the government must pay annual interest charges on any SDRs it has converted that bring the total in their account below the amount they’ve received in official allocations. The interest charge is based on the basis of interest rates on short-term debt for the four basket currencies and is re-calculated every week. At the moment, with the driving down of interest rates in response to the financial crisis, the rate is very low – less than 0.5%. It can vary a great deal, however, and has been as high as 9%. The interest charges continue until the country replenishes its SDR account by re-converting hard currency.”

   http://www.actionaid.org/assets/pdf/ActionAid%20Factsheet-%20Special%20Drawing%20Rights%20%20the%20Global%20Reserve%20System.pdf

   My take on that reading is that the SDR expansion will encourage a move away from hard currency due to the interest charges accessed.

   The other impression I got was that the IMF is soon to resemble the Fed Reserve bank only in reverse and on steroids. As the dollar collapses, nations will look to resettling accounts via sdr-manipulation, but the nations will be penalized for leaving the account balance in hard currency. What a racket!

2. 

   frances snoot

   26/10/2009 at 16:24

   George Soros indicated that the IMF is using IMF gold to pay the interest on the sdr transfers to poor nations by the UK and France in an interview with the Financial Times. The interest is low now, he indicates, but “somebody has to pay it.”