SDR Currency & Emerging Markets Meltdown

Pj de Marigny, DITMo Strategie
Director, GARP, S. California Chapter

22Sep2011, Newport Beach, CA. Just after two years, the SDR allocation increased to $400B (+$161B) for Emerging Markets liquidity bailout 28Aug2009. The SDR, a reserves mechanism facilitating the Bretton Woods’ currency-fiat-pegging system set the USD at .888671 grams of gold per dollar. In 1973 (Nixon) BW failed and the SDR became a 4 currency basket. Just FYI, if the BW convention was in force, the USD would be worth (where 28.3495231 grams/oz) approximately $55.75! Imagine using this as the measure of inflation? The SDR was to restore a balance to Emerging Markets current accounts.

The point of this short article is to reinforce a point made by George Soros today on CNBC, that it is Euroland that is the main source of liquidity to Emerging Markets, and Emerging Markets progression through the IPLC (International Product Life Cycle) that provides markets for U.S., Asian, and EMEA growth.

The IMF now has the right to create allocation units of SDRs as it deems necessary to provide liquidity to members – especially Emerging Markets. This is a second derivative monetary regime. The IMF also has the right to change its currency basket in 2015 which it should do and replace the SDR with a new world currency that is envisioned by former Fed Chief Paul Volcker.

The answer here is to revamp the IMF/G20 and BIS members into a new monetary consortium with BASEL standards thereby removing monetary autonomy from central banks forced to monetize fiscal irresponsibility. In the U.S. Barney Frank has even gone so far as to declare that Congress should control the central bank. The EC should reconstitute into a political/monetary system of only the ten strongest constituents with the U.S. to create a central currency. The remaining EC states and others may adopt the new SDR as their currency reserve. This may all be executed through BIS with a new mandate under the standards of BASEL. *.*