#IMF, #SDR, #RMB – 国际货币基金组织, SDR, 人民币

Out of an individual country weakness, there are more chances that we will derive failure than success.

Out of a mutual weakness, chances are that we can set aside our differences, and the fear of failure will enhance our chances of success.

The memory (or should I say memories) of past glories and continuous internecine wars over more than 1,000 years pushed Europeans to say that enough was enough, and created that imperfect centaur that we call “European Union”.

At a time when, again, politicians try to fight their inability of provide motivation for hope in a better future, and take refuge in what in the XX century gave us Mussolini, Hitler (and their comic variant, Mosley), we are again at more or less where we were in 1914.

With few differences: globalization back then was anyway “filtered”, while today it is both subject for the elites, statesmen, and ordinary citizens.

I announced earlier this week: “an interesting day, a workshop #connecting #past and #future #dots from business/studies/reading/political activities- #international #political #economy , #currency , #SDR , #Euro , #Bancor , #Bitcoin , #RMB and #miniassegni 😀 tomorrow and on Friday I will be to move ahead on two books (i.e. writing) but by the end of this week-end I should be able to convert my thoughts and minutes into three posts: the “business side” on less http://lnkd.in/63VdcS , the personal side on http://lnkd.in/dNDiKvT , and the… Chinese side on http://lnkd.in/dK73Nvr”

This section is a shared introduction to those three short articles, and it serves just one purpose: explain the title, and pave the way for three parallel three, each one “deployed” on a different site, but then converging on my blog, where I have more freedom to make information flow the way I want.

As you can see from the picture, I attended a conference, and you can find the programme here, while the report that was discussed is available on the Triffin Foundation websiteThe keywords in the title? The IMF is more reviled than known, but I think that you can visit their website http://www.imf.org to know about the institution and its history- let’s say (I do apologize for the oversimplification) that it was created (along with others) as a side-effect of few decades of efforts to bring about global governance of the economy.

In the XXI century, we live under the illusion that we are the first to experience globalization- but it is a recurring affair through human history, and not just in Europe and their former colonies.

As I noted above, currently globalization allows also cross-connections at the bottom of the “economic feeding chain”, but at the top it has been there for a while, and if you really want to think that technology is a prime enabler, then go back to the first transatlantic Morse code transmission.

The “currency” of the IMF is called SDR, or, better, SDRs (Special Drawing Rights), and it is based on a basket of international currencies that fulfil some requirements- you can have a look at a fact sheet, while if you are curious how much is worth an SDR, this page contains the latest exchange rates.

You obviously know what is the Euro, basically one step through the path that started in the late XX century to “converge” or “stabilize the relationship” between currencies adopted by Member States of what is now called European Union (EU henceforth)- a surrogate for the inability to do the usual way, i.e. first create a country, then a currency.

I will skip the discussion about the criteria for membership of the Euro- google it, and you can find plenty of information on the ECB (European Central Bank) website.

As for the Bancor, probably the Wikipedia page can give you enough information of this proposed “global currency” (technically: supranational currency, i.e. not issued just by one state, as the USD is) that should have replaced the role of the gold standard (basically, the concept that every bit of paper with a denomination in your pocket represents an amount of gold held in reserve by the bank issuing that banknote- currently, a figment of imagination) http://en.wikipedia.org/wiki/Bancor

Instead, it is more interesting, and more relevant, an article that was given at the folder (I had read it before attending the conference, as other material) by Tommaso Padoa-Schioppa, reprint of a speech that he gave at Louvain-la-Neuve on 2010-02-25, “The ghost of Bancor: the economic crisis and global monetary disorder”.

As for the Bitcoin: my online friends and connections (and anybody who dared to talk with me about Bitcoin, Linden, or any other “digital currencies”) knows that, while I consider paper currencies nothing more than a promissory note based on faith in the issuer, but at least with a marginal collateral (some gold reserves and the economy of the State issuing it), digital currencies so far are tantamount to fraud, as it was shown by the Linden, the internal currency of the online system called Second Life.

More about this will be discussed within the “business” section- as I think that both Bitcoin and any other currency issued by a non-State (yes, also an SDR that were to be eventually usable by the private sector) generate governance and risk issues: who controls the controllers?

Now, if you had a look at the exchange rates for the SDR (follow the link given few paragraphs ago), you probably saw something: it is a partial list of currencies, and the Chinese RMB is missing- as, obviously, is the Bitcoin.

For the time being, the RMB has been deemed as not fulfilling the conditions to be part of the basket represented by the SDR, also if, as reminded at the conference, Chinese financial institutions already started using it through financial instruments; this may or may not change in 2015, when there will be the next basket composition revision.

The last bit is probably familiar only to Italians working in banking- or Italians who are at least in their late 40s.

There was a time when Italy had a scarcity of… coins.

Modern banking is said to have been created in Italy, consolidated into the form of banks in the XV century, and our banking industry has always been quite creative, when an opportunity appears.

A “cheque” in Italy is called “assegno”, and “mini-assegno” means just that: a “small bearer check”, pre-printed with amounts corresponding 50 or 100 liras (at least those that I remember), i.e. approximately 25 and 50 Eurocents.

As the same time, I remember that we used as coins also phone tokens issued by the state monopolist, and sometimes even candies!

Those paper “mini-assegni” were issued by banks, exchanged as if they were ordinary currency, but were in effect just a “promise to pay” by the bank issuing it.

Often, the production costs were cut so much, that mini-assegni simply “melted” in your hands after few uses- a good business for the issuer (see hints here – more details in Italian).

The discussion about “creating currency” (be it SDR or Bitcoin) sometimes reminds me of the logic of the miniassegni, i.e. the lack of currency issued by the State (with the SDR, a supra-national global state) created by circumventing some regulations that restrained the ability to create currency (the miniassegni, at least initially, used to be formally issued by the banks to their corporate customers as bearer checks).

It is obviously desirable to have a payment method that isn’t subject to the control of the largest debtor on Earth, and I shared years ago my idea that it made sense for China to go on a shopping spree with its stash of USD- I was sneered at when I said so, but it sounded as the most logical way, and you did not really need a crystal ball or special skills to forecast that- just common sense.

I think that global issues should be solved at the global level.

Probably it could be beneficial to all involved increasing the representativity of SDRs (by including the RMB within the basket), and expanding or even encouraging its use within the private sector (e.g. as HMRC-UK did few years ago with the Euro for companies that traded mainly with Euroland, allowing accounting to be carried out in Euro, and converted in GBP only to report income and pay taxes; my own companies had Euro accounts as well as GBP accounts).

Now it is the right time to start splitting the article in three parts- I do not expect that all three will be read by the same audience, but, as I wrote at the beginning, I will post an article on my blog that “collates” the three articles; the link is http://gettingaroundtheworldnet.wordpress.com/2014/11/30/international-political-economy-currency-sdr-euro-bancor-bitcoin-rmb-and-miniassegni

So, let’s now switch to the “Chinese side”.

As discussed over the last few posts on https://wodeshudian.wordpress.com, China isn’t anymore just the “factory of the world”, and, along with others, worked on two issues: developing an internal market (for various reasons), and use strategically its trillions of USD.

If you read newspapers over the last couple of years (e.g. search on http://www.robertolofaro.com/blog for “China” and “digest”), you read about a series of commercial agreements signed around the world- including with individual countries within the EU.

Since President Nixon’s visit to Mainland China, it isn’t just the diplomatic and commercial relationship with USA that changed, but also the country in and by itself- and the accession to various “business-oriented” international institutions was just a stepping stone toward a different role.

An element within this path of change has been the gradual expansion of the role of China’s currency, the RMB- including by allowing its increased use in transactions and as reserve currency.

At the conference, a presentation was focused on explaining why the RMB should, in 2015, be added to the basket of the SDR- with reason ranging from the technical (dissecting the “rules” defining the characteristics of a currency to be added), to common sense (expanding the representation of global trade and reduce risk, e.g. by lowering the weight of the USD), to political motives.

Actually, Mr. Qiao Yide added that the BIS already received deposits in SDR from China and Hong Kong.

Another opportunity is the new “BRICS development bank” (currently set to receive 50bln USD, with authorized capital up to 100bln USD, and a further reserve facility worth an additional 100bln USD http://www.bbc.com/news/business-28317555) to be headquartered in Shanghai.

As Elena Flor reminded, nothing forbids it to actually use SDRs as capital, increasing its “supranational role”, not being dependent on a single currently issued by a single State that is not even a “member” of the founding Member States, moreover preparing for when also the RMB eventually (maybe not as early as 2015, but in 2020) will be added to the SDR basket.

Adding another currency, moreover a currency that represents a potential competitor for the current leading country, USA, would require the political will of all the countries whose currencies are already within the basket: it is not just a matter of technicalities.

Considering that the USA is on the path to reduce its dependency from energy imports and maybe even turn into an energy exporter, it might be relatively more interesting also for other countries to move the World economy beyond its reliance on the USD.

Anyway, it is still to be seen if the USA and its allies will be open this this change- a change, which, eventually, may open the door to a significant alteration of the balance between the founding members of the IMF.

As for Mr. Qiao Yide presentation… Mr. Ping Sun basically added as a reply that it is better to do things when it is the right time to do so, than to push it through by bending the rules.

For the time being… have a nice week!

PS Please read the introduction to understand how to use this website 🙂


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