The IMF's Special Drawing Rights (SDRs) have received a lot of attention lately because they are increasingly seen as the stepping-stone to a true international currency. In order to understand how this could happen, it is important to comprehend just what an SDR is and how it might evolve into the world's main currency.
SDRs are international reserve assets supported by the International Monetary Fund (IMF). It is not a currency of itself but a "claim" on the IMF member currencies. In point of fact, if a country wants to cash in its SDRs, it has to find another country willing to trade dollars for its SDRs. While the SDR basket includes the pound, the euro and the Japanese yen in addition to the dollar, the dollar remains the settlement currency of choice as it is the most liquid and yet the world's "unofficial" reserve currency.
There are apparently over 22 billion SDRs that have been apportioned by the IMF. It is important to note that they are not currency per se and thus cannot be spent in the open market, only traded for another currency (the dollar), which provides the sought-after liquidity.
SDRs do not stand alone but are backed by the IMF's money pool, the result of contributions by all 187 member states to the IMF. It is the money pool itself and the commitment of IMF members to honor the SDRs that provide SDRs with their reserve status.
SDRs were initially created in 1969 to help with a shortage of dollars and gold; the idea was that additional currency would provide additional international trade. This initial rationale became inoperative after the US went off the gold standard in 1971; however, SDRs survived.
Of late, the IMF and its Anglo-American elite backers have seen the opportunity to turn SDRs into a true world currency. A roadmap to this was released at the 2011 Davos conference, emphasizing the creation of an IMF managed bond and repo market and other necessities of modern-day fiat currency. It is not enough merely to have a currency. One needs a central bank (the IMF) and a bond market so that countries can safely store their excess currency while receiving some sort of yield.
In order to turn SDRs into a true world currency, the IMF, with the agreement of its member states, would have to reconfigure the SDR so that it was fungible of itself, without the current two-step process that trades SDRs for dollar-liquidity. The economist John Maynard Keynes anticipated this idea by nearly half a century, suggesting just such a liquid international currency, which he called the bancor.
Theoretically, there is no reason why a bancor could not be created if member states agree to it. Likely the bancor would be backed by a basket of currencies and would be accompanied by the creation of the IMF as a formal central bank to issue bancors, along with a bond market for bancors, etc. The dollar would be part of the basket and give the bancor its initial credibility. But as the bancor itself became the currency-reserve choice, the dollar's clout would gradually fade away.
Creating a global currency this way is at least a two-step process. First, SDRs have to become a more ubiquitous secondary currency; after this, steps must be taken to make the currency liquid in world markets. All this is doable but as it stands now, the IMF would control the currency and the IMF itself, despite its false pretense of democracy, is controlled by the Anglo-American elite.
This is the ultimate sticking point. The long-deferred dream of the Anglosphere is to achieve a global currency under its control issued by a global central bank. But China, Russia, India and other sizeable countries are loath to give the Anglo-American elites this sort of additional control. With the dollar collapsing, leaders in these countries may believe they can set up their own international currencies and maintain greater control over them.
Thus it is that a great battle is being played out on the international stage – a kind of tug-of-war between developing countries and the West over who will have control of the world's first truly global fiat currency. If this contest cannot be resolved it is quite possible that the fiat-dollar reserve itself might fracture and the world will be left only with regional fiat currencies.
If this is the case, a gold standard might reassert itself organically, as a market-based gold (or gold and silver) money standard is the obvious alternative to such synthetic currencies as SDRs. For many, including most free-market thinkers, such a gold-standard default would be infinitely preferable to what the IMF and its Anglo-American controllers have in mind.