Digital SDRs by the IMF?

The Washington- based Institute of International Finance reports that the world’s debt has reached a humongous $244 trillion, which is more than three times the size of the global economy.

Remember the financial crisis of 2008? Were there any signs? It is up for you to answer this question. But lets point out that in last year, the government debt exceeded $65 trillion, up from $37 trillion ten years ago. Non-financial corporate debt rose to over $72 trillion last year, which is now near an all- time high of 92% of GDP. Household debt and financial sector indebtedness are also very significantly up.

Last week, an article was published where Jimmy Song has said that the International Monetary Fund (IMF) ‘already has a sh*tcoin called Special Drawing Rights’. Perhaps, this was fuelled by the announcement of the IMF and the World Bank saying that they are experimenting with blockchain and have issued a ‘Learning Coin’ to better understand distributed ledgers and associated use cases.

This has reminded me of an essay that I wrote 1.5 years ago, where I speculated that in case of the next Global financial crisis when the debt bubble would explode and we might potentially loose trust in dollar and global the financial system, we might have the IMF come in with a new global reserve currency, which is, in fact, digital: Welcome the digital SDRs. This was a speculative essay of course and intended to be a good food for thought. Enjoy.

Essay: ‘How the Blockchain technology can be incorporated into the international settlements system’

1 October 2017

This essay aims to explain how bitcoin or the technology behind it can be incorporated into the international settlements system. Recently, more and more people have already heard the word ‘Bitcoin’ and have various presumptions and views about it depending on the ecosystem they live in. Some of those who heard bitcoin think about it as some sort of a coin, perhaps used to buy something online- they heard that one could buy drugs. Others have more knowledge and see it as an anarchist future payment system and anothers are simply using bitcoin for speculation in the markets as they would use anything else. In the meantime, some serious experiments and plans are being conducted by the world’s financial lords to explore how to adopt this technology to change the current international financial system.

It is pretty obvious that the World is at the tipping point and major changes are taking place, some of them planned and some are developing as expected or unexpected outcomes. The history repeats itself and although the matters that arise seem to be new, the fundamentals of the issues that need to be solved are the same. The central bankers that created the current fiat money system backed by exponentially increasing debt, know the cycle of the currency issuance very well: one always has to repay more than he has borrowed. The world’s most popular currency, the US dollar, is backed by debt that is increasing in astounding volumes and this can not be sustained: the World’s central bankers in the form of the Bank of International Settlements, coupled up with the International Monetary Fund and powered by the ‘global elite’ know that.

So now, the issue of the World’s, and most importantly, the US debt has to be sorted somehow. How will the US debt problem be solved, also, how will Germany continue its Europe- domination plan, moreover, how can the ‘global elite’ take more control of the world’s assets?

The quantitative easing cannot last forever- the increments involved already don’t manage to catch up, one can only imagine how many zeros per minute somebody has to type to issue new US dollars. The Euro, a fake currency created to enforce Europe’s centralisation- of- power plan, is also showing clear signs of weaknesses, not to mention that already before the adoption of the Euro the economists warned that a single currency cannot work without a single fiscal policy. Moreover, the Chinese want their say in the global payments system and are not happy with the US dollar domination.

In 2009, when the debt bubble exploded, a communiqué issued by the G20 leaders announced G20 has ‘agreed to support a general SDR allocation which will inject $250 bn into the world economy and increase global liquidity, therefore ‘moving a world a step closer to a global currency’ [1]. When the World’s leaders discussed whether the world needs a new banking watchdog, the BIS was suggested as the most suitable candidate.

If we take all factors mentioned above into consideration together with the fact that the Chinese have pushed for the SDRs to go digital[2] and the fact that the IMF’s Christine Lagarde has said that SDRs could get a boost from the growth of digital currencies and did not dismiss the idea that the SDRs could supplant the US dollar and the Euro, we are potentially looking at the future which is an international monetary and settlements system fuelled by the digital SDRs. In other words, the World’s reserve currency might become the digital SDR, with the aim of the World’s global currencies to be backed by it and of course the project managed by the BIS and the IMF.

The digital-SDR-based system, the international settlements system powered by the bitcoin technology would make the existing financial settlements structure a history. We can forecast that the lauded benefits to adopt digital SDRs as the global currency would be the ‘increased transparency’, more efficient liquidity monitoring, dramatically increased speed of cross-border transactions due to the intrinsic features of the technology, reduced settlement risks for the central and commercial banks, practically no foreign exchange risk due to currencies pegged to a basket of the currencies of the key global economies, and other.

It is visible that the experiments and the use of the blockchain technology are very much encouraged in the financial sector and the financial institutions are embracing it by creating hubs, working groups and various fintech initiatives.

SWIFT, which is crucial to the international settlements system, is developing ‘a proof of concept application that will test whether distributed ledger technology can be used by banks to improve the reconciliation of their nostro accounts in real time, optimising their global liquidity’: over 20 global banks are involved already. The US Federal Reserve has set up a Faster Payments Task Force, in which Ripple ‘played a leading role in establishing the future vision for payments’

The history has shown that various monetary and settlement systems have been put into place to solve the same issues that the humanity and its ecosystem faces. The current system is only a little more than forty years old and it seems that the global elite might already have a plan in mind for us. It might not be the plan described above- the digital SDR plan- but without a doubt there is a plan. The technology behind bitcoin has already shown how it can make the cross-border settlements much faster, record keeping more efficient, monitoring more easy and accessible. It remains to be seen what version of this technology we will have in the future.

[1] ‘The G20 moves the world a step closer to a global currency’, The Telegraph, 3 April 2009

[2] ‘IMF’s Special Drawing Rights should go digital- China c.bank researcher’, Reuters, 17 November 2015