Precious Metals or Monopoly Digital Currencies – You Decide
By Daily Bell Staff - November 04, 2015

IMF signals renminbi set for inclusion in SDR basket … International Monetary Fund representatives have told China that the renminbi is likely to join the fund's special drawing rights (SDR) basket of reserve currencies … The renminbi's inclusion in the SDR basket will help spur China to accelerate financial reforms and economic opening up and catalyze yuan liberalization, according to the report. – WantChinaTimes

Dominant Social Theme: It is important for China to participate in the IMF's SDR basket. So very important.

Free-Market Analysis: Placing the yuan in the IMF's currency basket is bound to happen sooner or later. But in the past few weeks, the prospect has been much in the news again because the IMF has brought up the subject once more.

(Note: We will refer to the Chinese currency in this article as the yuan. The renminbi is the name of the Chinese currency in aggregate, but the yuan is the name of the actual unit.)

It is regularly speculated that the slow-growing basket of currencies that support the IMF's SDRs is a global currency in waiting and that at some point national currencies will be supplanted by SDRs in some form or other. That's the "conspiracy" theory, anyway. (Of course, sometimes conspiracies prove to be true.)

But let's try to understand a little more about SDRs. Here's some more from the article excerpted above:

The IMF reviews the SDR basket valuation method every five years to ensure that it reflects the relative importance of major currencies in the world's trading and financial systems, with the aim of enhancing the attractiveness of the SDR as a reserve asset.

The current criteria for inclusion were adopted by the IMF board in 2000. They established that the SDR basket comprises the four currencies that are issued by members or currency unions whose exports of goods and services had the largest value over a five-year period, and have been determined by the IMF to be "freely usable" — to date, this includes the US dollar, the euro, the British pound and the Japanese yen.

The article goes on to tell us that the yuan ought to be included by virtue of its size since China is the world's largest exporter of goods at this time. The sticking point in the past has been whether the yuan is freely usable.

Now the IMF seems to believe that China has made a good deal of progress in this regard. China has truly globalized the use of the yuan via currency swap agreements and by settling international transactions in yuan.

All this sounds quite impressive and at least partially fulfills economist John Maynard Keynes's dream of a global currency – the bancor – which he floated enthusiastically at various monetary meetings that took place after World War II. (The IMF reportedly released a document in 2010 that suggested a "bancor" might be the preferred global currency, even superseding SDRs.)

It looks as if the IMF may be on track to implement an international currency, though IMF officials have warned it could take years or even decades for full implementation of whatever they choose.

But one individual who is not looking forward with any great enthusiasm to the IMF's version of a global currency is the publisher of Sovereign Man, Simon Black.

In a recent article entitled "Meet the Digital Currency That Is a Total Scam" he wrote about the IMF's latest announcement regarding the yuan.

In the 1960s, the IMF… created their own digital currency for the exclusive use of governments and central banks. They're called Special Drawing Rights (SDR, or XDR). And even though the IMF's balance sheet totals nearly 300 billion SDR (around $211 billion USD), not a single SDR exists in physical form.

100% of the SDR money supply is digital … It exists in computer databases, making it the digital equivalent of a 500-year old accounting system [and like other currencies it is] controlled by central banks.

The SDR in particular is a total scam; the entire reason it was created was because the system didn't have enough real savings. So they 'solved' the problem by creating a new digital currency that allowed them to easily conjure more money out of thin air.

Black makes other plainspoken points: He is not in favor of modern digital currencies generally because they are controlled by the central banking establishment – just as SDRs are.

In fact, as capital controls are increasingly implemented, the ability to withdraw national currency from banks is increasingly limited. In this sense it is not "your" money. You share control – and don't even make the rules.

At this time, in Black's view, there are perhaps only two popularly available monies that are not fully controlled by central banks. One is bitcoin (in all its iterations) and the other is precious metals (gold and silver).

Simon Black sees bitcoin as a legitimate money alternative because he believes that marketplace competition decides its value rather than technocratic price fixing of the volume and value of "money." Bitcoin's value has been rising lately, from below US$300 to over US$400.

Unsurprisingly, Black is partial to gold and silver, because from ancient times both the white and yellow metals have seemingly retained a level of intrinsic value.

Here at The Daily Bell, we've been somewhat skeptical of bitcoin just because of its Hollywood-like backstory and because we tend to believe that its anonymity is over-rated. Also the currency is very young and thus in a sense unproven.

On the other hand, the absolute mess that the world's central bankers have made with their "own" currencies seems to be propelling bitcoin forward (though there may be other reasons as well). One can at least argue that at the present time, bitcoin seemingly remains out of the clutches of the BIS and is therefore preferable to central bank manipulated currencies.

Bitcoin is a new money by anybody's standards, but gold and silver have a history that goes back thousands, and maybe tens of thousands of years. The chances of gold and silver holding their values over time are considerable based simply on the historical record.

For those who do not want to hold physical gold and silver, there are other options including ETFs. And junior and intermediate miners are possibilities for those who are interested in speculation as well as value.

We've reported on the argument that both physical metals and miners may prove promising at this juncture in the business cycle. In fact, an argument can be made – and we have made it – that the Golden Bull that began in the early 2000s has not yet wound down and that there is still to come in this business cycle a mad mining "blowoff."

This would be roughly analogous to the frenzy of the early 1980s when gold and silver stocks traded at high multiples. Daily Bell chief editor Anthony Wile recently published some thoughts on metals stocks that you can see here.

After Thoughts

In markets, nothing repeats predictably and perhaps we will not have a "blowoff" when it comes to metals equity or even the physical. But no matter the future of metals-based paper, gold and silver (and perhaps bitcoin) look to be preferable to modern, monopoly digital currencies controlled (and regularly debased) by central bankers.

Posted in Gold & Silver, STAFF NEWS & ANALYSIS
Share via
Copy link
Powered by Social Snap