Friday, April 20, 2018

IMF Issues New Report on Expanded Role for the SDR

Last fall the IMF announced it would begin a study to see if an expanded role for the SDR might improve the financial stability of the international monetary system. This month the IMF issued a report on some of its findings. Below I have pasted in that report. I added bold type for a few points I wanted to emphasize.

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IMF Executive Board Discusses the Role of SDR

April 11, 2018
On March 30, 2018, the Executive Board of the International Monetary Fund (IMF) discussed a staff paper entitled Considerations on the Role of the SDR. The paper explores whether a broader role of the SDR could contribute to the smooth functioning and stability of the international monetary system (IMS). It provides an updated assessment of the IMS, highlighting its considerable resilience but also some weaknesses—a weak external adjustment mechanism, gaps in international liquidity provision, and large-scale reserve accumulation— and explores whether the SDR could play a broader role in mitigating these weaknesses

Conceptually, there are three distinct forms of the SDR: official SDRs, the reserve asset administered by the IMF (O-SDR); SDR-denominated financial instruments, or “market SDRs” (M-SDR); and the SDR as a unit of account (U-SDR). The O-SDR was conceived under the Bretton Woods gold exchange standard as an international reserve asset to supplement existing reserve assets. As the IMS evolved, and despite the aim of the Second Amendment of the Articles of Agreement to make the SDR “the principal reserve asset in the international monetary system,” the SDR’s role as an international reserve asset has been limited. Interest in both the U-SDR as the unit of account to price international trade or for the dissemination of statistics, and M-SDR as the denomination for financial instruments such as bank deposits, loans, or securities, has been sporadic with low overall uptake. 

The staff analysis concludes that among the three conceptual forms of SDR, the O-SDR has the greatest potential to contribute to the smooth functioning of the IMS under a different legal framework that would require amendments to the Fund’s Articles of Agreement. The paper highlights, among others, the major challenges around scale, targeting and the use of O-SDR allocations. It argues that widespread M-SDR and U-SDR use would likely make more limited contributions to systemic IMS stability and face significant implementation challenges. The paper also aims to initiate a conversation about the SDR’s role amid uncertainties caused by economic and technological developments, such as the prospect of a more multipolar global economy and the impact of financial innovation and new technologies. 

Executive Board Assessment

“Executive Directors welcomed the opportunity to discuss whether the SDR could play a broader role in contributing to the smooth functioning and the stability of the international monetary system (IMS). Many Directors noted that the IMS had shown considerable resilience and strength, including during the global financial crisis (GFC), and a few noted that it had been further strengthened after the GFC. Directors noted, however, that the IMS continues to face several important challenges, mainly related to external adjustment mechanisms, gaps in official provision of international liquidity, and systemic side effects of large scale reserve accumulation. In this context, Directors reflected on whether an enhanced role for the SDR could help in mitigating the observed weaknesses of the IMS and complement other efforts such as global policy coordination, enhanced surveillance, and a strengthened global financial safety net (GFSN), alongside countries’ own efforts to increase resilience through sound domestic macroeconomic policies and strong policy frameworks. Most Directors were uncertain or unconvinced that there is a role for the SDR in addressing the weaknesses of the IMS. A number of Directors, however, considered that there is a potential for the SDR to address these gaps and saw merit in continuing to explore its future role.

“Directors discussed whether an expanded role of official SDRs (O SDRs) could help smooth external adjustment, augment the supply of safe global assets, and reduce incentives for precautionary reserve accumulation. In this context, while a number of Directors saw a potential for additional O SDR allocations to help foster greater IMS stability, most were not convinced that it could be effective in addressing the IMS gaps. Many Directors noted that the 2009 SDR allocation played an important role in mitigating the impact of the GFC. Nevertheless, many Directors also cautioned that such allocations could raise moral hazard concerns, including reluctance in some recipient countries to enact needed policy adjustments, although a few felt that such concerns might be overstated and could be mitigated through increased transparency and effective surveillance. Some Directors also doubted whether voluntary trading participants would be willing to support high volumes of O SDRs. A number of Directors expressed skepticism regarding alternative targeting mechanisms for SDR allocations, such as allocations contingent on global conditions or meeting policy criteria, noting that it would blur the distinction between conditionality based Fund lending and the role of the SDR as reserves. Many Directors noted that such alternatives would require amending the Articles of Agreement and resolving a number of operational considerations, such as the allocation of credit risk.

“Most Directors saw limited scope for market based SDRs (M SDR) and SDRs as a unit of account (U SDR) to contribute to systemic stability. Despite the benefits of diversification and stability of payments and receipts, uptake would be hard to achieve even with official sector support to reduce transaction costs and develop market liquidity and infrastructure. A number of Directors, however, saw merit in exploring these issues further, and a few called for a more active role for the Fund to contribute to the development of SDR market infrastructure. 

“Directors welcomed a preliminary discussion of economic and technological transitions, such as a potential move toward a multipolar global economy and adoption of financial technologies, and their impact on the IMS. Most supported further analysis of how these developments could reshape the IMS in the future, noting that the role of the SDR either should not be the central question in this analysis or need not be explored at all. It was also suggested that staff should focus more on issues such as exchange rate adjustment, excess reserve accumulation, and global rebalancing.”

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My added comments: As we can see from the report above, the IMF continues to look at the idea of some kind of expanded role for the SDR in the international monetary system. We have covered that extensively here since Jim Rickards continues to predict that when the next major global financial crisis arrives, the SDR will be put forward to replace the role of the US dollar as global reserve currency.

Along those lines, we have also extensively covered the Real SDR proposal of Dr. Warren Coats (former IMF) which is a real detailed proposal the IMF could consider at some point in the future. We have even published a direct Q&A interview with Dr. Coats on this proposal

Looking at this new release from the IMF, I don't see any indication that there is much momentum inside the IMF for much major change at this time. Please note the bolded sections above which state clearly that "most (IMF) Directors were uncertain or unconvinced that there is a role for the SDR in addressing the weaknesses of the IMS (International Monetary System)." Also, see this quote from the concluding paragraph:

"Most (IMF Directors) supported further analysis of how these developments could reshape the IMS in the future, noting that the role of the SDR either should not be the central question in this analysis or need not be explored at all."

This is in line with what I heard for some time from experts like Dr. Coats and what we have reported here. I continue to believe that without a new major global financial crisis, the impetus for major change to the existing monetary system does not exist right now. This is why we have focused on keeping an eye on any events that might lead to a new major crisis. That would be the trigger point that could change the dynamic of the situation and allow for new ideas to be put forward. 

We will continue to monitor events that might lead to a new crisis, but unless we see those emerge by mid to fall 2018, we will end regular blog articles here and simply continue to monitor events and wait for something significant to report. Meanwhile, readers can access our list of potential systemic risks here and various proposals for monetary system change here. If a new crisis does emerge, this information will be valuable for readers to be able to access.

Monday, April 16, 2018

Jim Rickards on Russia

Jim Rickards offers this geo political analysis on Russia. He says the threat from Russia is not any attempt at world conquest, but rather its more modern approach to increasing Russian influence using a long term campaign to undermine the US dollar as global reserve currency. Below is an excerpt.

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"Russia’s Putin has never taken his eye off the ball. His ambition is not global hegemony or European conquest. Putin seeks what Russia has always sought: regional hegemony and a set of buffer states in eastern Europe and central Asia that can add to Russia’s strategic depth.

In Syria, Russia has the warm water port of Tartus — which is important when you consider that most Russian ports are ice-bound for months of the year.

It is strategic depth — the capacity to suffer massive invasions and still survive due to an ability to retreat to a core position and stretch enemy supply lines — that enabled Russia to defeat both Napoleon and Hitler. Putin also wants the modicum of respect that would normally accompany that geostrategic goal.

Understanding Putin is not much more complicated than that."    . . . . .



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Added note: A blog reader (not Jim Rickards) sent me these thoughts by email in regards to events taking place in Syria and related to Russia:

"Trump tells Russia, "Get ready for missiles in Syria". Most people think this is probably about the chemical attack.  I believe it is about the real war about to get started over the petroyuan and Russia-Iran-Syria having a pipeline and port to the Mediterranean.  This could be the stresser against the dollar forcing monetary change."

Additional side notes: I sent Jim Rickards a link to this recent article appearing in the NY Post and he indicated in his reply that he agrees with the main thrust of the article. This means we should keep an eye on what happens with the Trump legal situation and its potential impact on markets as we noted here earlier. More and more analysts (both pro and anti Trump) are talking about this situation as a coming potential "constitutional crisis". Obviously, if that does happen, it may negatively impact markets and even systemic stability.

Also, after Jim wrote this article on Russia, the US launched attacks on Syria and Russia reacted with anger. Another potential global trigger point we must keep an eye on. Jim made this comment on that recently in his twitter feed.

"Syrian Civil War bears more than passing resemblance to Spanish Civil War in that Russia confronts West via proxies while Great Powers use the conflict as proving ground for new weapons as they prepare to fight each other." --- Jim Rickards

One could make the observation that so far, despite some corrections, global markets have shown remarkable resilience in the face of ramped up tensions between the US, China, Russia, North Korea, and pretty much the whole Middle East. On top of all that, we appear to have the potential for a global trade war. In this recent article, Nomi Prins makes the argument that this won't last and markets will eventually react in a way that forces new easing policies by central banks.

Saturday, April 14, 2018

IMF - US Dollar Share of Global Reserves Hits 4 Year Low

In its most recently quarterly report on global reserves, the IMF reports that the share of US dollar reserves globally hit a four year low. The MalaymailOnline carried the report and some excerpts are below. It should be noted that while dollar reserves did drop a bit a new four year low, they are still by far the majority of global reserves.

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"NEW YORK, March 31 — The US dollar’s share of currency reserves reported to the International Monetary Fund declined in the final quarter of 2017 to a four-year low, as other currencies’ shares of reserves grew, data released yesterday showed.

The share of dollar reserves has declined for four straight quarters as the greenback weakened in 2017 due to faster growth outside the United States and bets that other major central banks would consider reducing stimulus. Still the dollar has remained the biggest reserve currency by far.

Global reserves are assets of central banks held in different currencies, mainly used to support their liabilities. Central banks sometimes have used reserves to help support their respective currencies.

“Reserve managers in Q4 liked (yen) and ‘other currencies,’” Steven Englander, head of research and strategy with Rafiki Capital Management, wrote in a research note. “The limited (US dollar) buying is not surprising. Reserve managers buy (US dollar) when they have to — they rarely want to buy.”



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Added news note: Quartz (QZ.com) reported in January 2018 that there is a small move away from the US dollar towards the Chinese Yuan going on in Europe. However, it again should be noted that the changes so far are very small and taking place at a very slow pace with the US dollar still over 60% of global reserves (the Euro is the next closest at around 20% while the Yuan is still only just over 1%).

Additional news notes: IMF Director Christine Lagarde issued a warning on global debt in this interview with the South China Morning Post. The Director noted that 40% of new global debt since 2007 has come from China and said the debt to GDP ratio for both Hong Kong and China raised red flags.She also pointed out that global debt has now soared to 220% of global output. Despite the warnings, she finished the interview by saying she is "desparately optimistic, always."

In this article in the IndiaTimes, she is quoted as warning that the so called "belt and road" initiative coming out of China may add to debt problems for some of the nations involved in that project. The article says that some of her comments may "ruffle feathers in Beijing."

I always find it interesting to read articles from different parts of the world because you can see how different talking points are emphasized depending on who is running the article.

Wednesday, April 11, 2018

Greg Hunter Interview on Kinesis

We noted earlier that the Allocated Bullion Exchange (ABX) recently announced its new gold backed cryptocurrency initiative they call Kinesis. Greg Hunter interviewed the CEO of the ABX along with Andrew Maguire to get more information on how this is intended to work. Below you can view that interview.

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My added comments:  Readers may wonder why we would cover this news given that earlier efforts to initiate a similar cryptocurrency by the ABX were not able to get off the ground. The answer is simple. The ABX has made an announcement that the Indonesian Post Office will be a partner with Kinesis. In addition, they repeat in this interview that an Islamic organization with 100 million members will also partner with Kinesis (see page 20 of the Kinesis blueprint). Also, near the end of the interview, the statement is made the some eastern governments have approached them with interest in participating in Kinesis and it is pointed out that Russia and China are continuing with massive gold purchases.

These are significant claims. If they pan out, they do provide a realistic path for Kinesis to gain enough widescale adoption by the public to become viable (starting in the Eastern part of the world). If that were to happen, the demand for physical gold (and silver) will certainly go up quite a bit because all the money in this system is fully backed by physical gold and silver. The gold and silver markets are fairly tight now in the sense that if only 3-5% of the worlds investment capital were to move into gold and silver, the price would be substantially impacted upwardly.

On top of this, what is being proposed here is truly an alternative monetary system that would operate fully outside the banking system and be backed by physical gold and silver. It is clear that the plan in this system is to entice money into it by offering a yield on gold and silver not usually available. The yield is derived from small transaction fees as the money turns over in transactions using Kinesis as money.

Only time will tell us if all this actually pans out. As noted above, previous efforts to do this by the ABX did not go forward. However, if this does pan out, we would view it as significant news we need to follow here over time. It appears it will be the fall of 2018 before this really gets started up. Currently, the fund raising process is in progress.

Added note (4-12-18): I am advised by reader who is participating in the Kinesis project that a series of additional new announcements by Kinesis/ABX are scheduled to come out fairly soon so we will watch for that news.


Sunday, April 8, 2018

Mark Carney (BOE) - The Future of Money

Here we have some more input on money from the head of the Bank of England (BOE), Mark Carney. This is recent speech he gave on The Future of Money that goes into some basics on money, looks at cryptocurrencies, and then tries to look ahead into the future to see where things may be headed. Below are some excerpts from the speech. (see the slides for the speech here).

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Comments on cryptocurrencies:

"Even though their prospects of replacing fiat money are tenuous at best, cryptocurrencies are of growing interest to policymakers, many of whom prefer to term them crypto-assets expressly because they are not true currencies—a convention I will adopt for the balance of my remarks.

On the upside, as I will come onto in a moment, some of the underlying technologies are exciting. Whatever the merits of cryptocurrencies as money, authorities should be careful not to stifle innovations which could in the future improve financial stability; support more innovative, efficient and reliable payment services as well as have wider applications.

On the downside, at present, crypto-assets raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of capital controls and international sanctions.

 The Bank of England’s FPC is currently considering the risks posed to UK financial stability. And internationally the Financial Stability Board (FSB) will report to the G20 in Argentina later this month on the financial stability implications of crypto-assets.

At present, in my view, crypto-assets do not appear to pose material risks to financial stability

This is in part because they are small relative to the financial system. Even at their recent peak, their combined global market capitalisation was less than 1% of global GDP. In comparison, at the height of the dotcom mania, the valuations of technology stocks were closer to about a third of global GDP. And just prior to the global financial crisis, the notional value of credit derivative swaps was 100%."

. . . . . .

Pointing to the Future I trust you have gathered by now that for many reasons the crypto-assets in your digital wallets are unlikely to be the future of money. 

But that is not meant to dismiss them. Their core technology is already having an impact. Bringing cryptoassets into the regulatory tent could potentially catalyse innovations to serve the public better. Indeed, crypto-assets help point the way to the future of money in three respects: 

- By suggesting how money and payments will need to adjust to meet societies’ changing preferences, particularly for decentralised peer-to-peer interactions; 

- Through the possibilities their underlying technologies offer to transform the efficiency, reliability and flexibility of payments; and 

- By the questions they raise about whether central banks should provide a central bank digital currency (CBDC) accessible to all.

. . . . . .

On the Potential for Central Bank Digital Currency for Everyone:

Third, crypto-assets raise the obvious question about whether their infrastructure could be combined with the trust inherent in existing fiat currencies to create a central bank digital currency (CBDC). 

Currently only banks can hold central bank money electronically in the form of a settlement account at the Bank of England. To be truly transformative a general purpose CBDC would open access to individuals and firms. 

The Bank has an open mind about the eventual development of a CBDC and an active research programme dedicated to it. That said, given current technological shortcomings in distributed ledger technologies and the risks with offering central bank accounts for all, a true, widely available reliable CBDC does not appear to be a near-term prospect. 

Moreover whether it is desirable depends on the answers to a series of big policy questions. While these are largely for another speech, I will note that a general purpose CBDC could mean a much greater role for central banks in the financial system. Central banks may find themselves disintermediating commercial banks in normal times and running the risk of destabilising flights to quality in times of stress.

There are also broader societal questions (that others would need to answer) such as how society balances privacy rights with the extent to which the information in a CBDC could be used to fight terrorism and economic crime.

A CBDC shouldn’t be a solution in search of a problem or an effort of central bankers to be down with the kids. 


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My Added Comments: This speech provides a lot of good information on the current thinking inside major central banks such as the Bank of England. I feel like we have covered the issues discussed in this speech about as well as anyone. We have noted that despite a constant drumbeat we see in various media that blockchain based crytocurrencies will soon be arriving at major central banks, the reality is quite a bit different. Here is what Mr. Carney says about this directly from this very recent speech:

The Bank has an open mind about the eventual development of a CBDC and an active research programme dedicated to it. That said, given current technological shortcomings in distributed ledger technologies and the risks with offering central bank accounts for all, a true, widely available reliable CBDC does not appear to be a near-term prospect. 
I think he makes things pretty clear. The US Federal Reserve has made similar comments as well in the past year. Those who have been speculating that the IMF will have a blockchain based SDR any time soon are off base as well in our view here. 

If you simply read what Mark Carney says in this speech, you will see that there a number of concerns central banks have about issuing central bank digital currencies even as they continue to study the concept. The IMF would be even less likely to move forward with anything like this until they see some major central banks test it out in the real world for a lengthy period of time (something that may not happen for years). As Mark Carny plainly says, "a true, widely available CBDC does not appear to be a near term prospect."

He does offer encouragement for improved cross border payments systems for existing national currencies perhaps along the lines that IBM and others are working on with partners such as Stellar and KlickEx. We will continue to watch for anything along those lines that may unfold over time.
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Added unrelated news note: Today (4-9-18) we get news that the personal lawyer of President Trump had his files raided by the FBI. Up to now I have viewed all this as mostly political theater leading to nowhere. This action today may indicate a much more serious ramping up of this situation. 

Anything that might lead to instability (or perceived instability) of the US government (and the President of course) is something we must watch carefully. A long, protracted and bloody legal battle could become a very serious situation. And we can be sure that the enormous political divide that exists in the US already will only get much worse as each side digs in and ramps up their attacks on the other side. Experts I follow also do believe this could be a serious situation as well.

That type of thing could certainly significantly impact markets on top of everything else. I encourage readers to pay close attention to this situation and market reactions to it going forward and consider what actions might be worth considering (to increase personal financial insurance against instability) if this situation gets much worse in weeks and months ahead.

Thursday, April 5, 2018

Bank of England - How is Money Created?

The Bank of England offers this explanation concerning the question of how money is created. Below are some excerpts from their article.

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How Does it Work?

"Money is more than banknotes and coins. If you have a bank account, you can use what’s in it to buy things, typically with a debit card. Because you can buy things with your bank account, we think of this as money even though it’s not cash.

Therefore, if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.

This also means as you pay off the loan, the electronic money your bank created is “deleted” – it no longer exists. You haven’t got richer or poorer. You might have less money in your bank account but your debts have gone down too.  So essentially, banks create money, not wealth."

. . . . . .

Can banks create as much money as they like?

"No, they can’t.

Regulation limits how much money banks can create. For example, they have to hold a certain amount of financial resources, called capital, in case people default on their loans. These limits have become stricter since the financial crisis."



Please click here to read the full article on the Bank of England web site


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Added note: Not to be outdone, the NY branch of the US Federal Reserve has produced comic books to explain banking and central banks from their point of view. You can find them here if interested:





Tuesday, April 3, 2018

Reuters - China taking first steps to pay for oil in yuan this year - sources

This is news that needs to be noted. Recently China launched new oil futures contracts trading in Yuan which many viewed as just one more effort to bypass the US dollar. How much impact the new "petro-yuan" contracts will have has been much debated.


Now we have Reuters reporting that three sources (not identified) are saying that later this year China plans to start using Yuan to buy the oil it imports. This could be viewed as a more significant effort to displace US dollars with Chinese Yuan and will need to be watched this year. Below are excerpts from the Reuters article (I added the underline and bold type for emphasis).

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"China is taking its first steps towards paying for imported crude oil in yuan instead of the U.S. dollar, three people with knowledge of the matter told Reuters, a key development in Beijing’s efforts to establish its currency internationally.

Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world’s most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China’s gross domestic product last year.

A pilot program for yuan payment could be launched as early as the second half of this year, two of the people said."


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My added comments: The article goes on to say that China could start up this program first with Russia and Angola and adds:

"Both Russia and Angola, like China, are keen to break the dollar’s global dominance. They are also two of the top suppliers of crude oil to China, along with Saudi Arabia."

It should be noted that the three sources cited here are not willing to go on the record with this information which suggests to me this may be a politically sensitive issue. Someone clearly wanted Reuters to report this, but no officials in China are willing to confirm it so far or provide much detail.

I have also seen a number of articles suggesting that China will eventually demand that Saudi Arabia accept yuan in payment for oil. All of this needs to be monitored especially given the apparent "trade war" that seems to be ramping up between the US and China. Not to mention we have the potential for a summit on North Korea with both the US and China involved. 

It is hard to tell how all the cards now being played between China and the US may or may not be related to the big picture maneuvering by each side (what is real, what is a bluff, etc). But it is news we should follow this year.

Sunday, April 1, 2018

Singapore (MAS) Managing Director - Crypto Tokens - The Good, The Bad, and The Ugly

Singapore is well known for innovation in things related to Fintech. We have mentioned here that we would keep an eye on central bank in Singapore (MAS) for possible implementation of central bank digital currency. Based on this recent speech by MAS Managing Director Ravi Menon, it appears that the MAS is continuing with serious testing along those lines. 


A thank you to a reader for sending me the link to this recent speech. Some excerpts are below.

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"Crypto Tokens: The Good, The Bad, and The Ugly"

"Ladies and gentlemen, good afternoon. And to all our foreign guests, welcome to Singapore. 

This is a conference named after Money. Money has been with us for at least 5000 years. And over the last 300 years or so, we have come to accept Money as being issued by central banks whose mission in life is to safeguard its value. 

Now, along comes a new phenomenon – crypto money or currency or asset. The past year has seen explosive growth in the trading and use of these crypto assets. We have also seen a roller-coaster ride in their prices."

. . . .

"MAS has been watching the crypto space with great interest. Our views are still evolving but let me share with you the current state of our thinking and our evolving regulatory approach."       . . . . .



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My added commments: There is a bit of new information related to the work the MAS is doing in testing the potential for a central bank digital currency. Midway through the speech we find this bullet point:

--  Following two successful proofs-of-concept domestically, MAS has entered a collaboration with the Bank of Canada to test and develop a cross-border solution using crypto tokens issued by the two central banks.



Tuesday, March 27, 2018

Ronan Manly Asked --- Why Do Central Banks Hold Gold Reserves?

One of the most amusing things about following the topics covered here is when I see articles suggesting that central banks no longer view gold as playing any important role in the global economic/financial system. Of course, it is true that gold no longer plays any role in the monetary system directly as it did for many years. You cannot exchange Federal Reserve notes for actual gold at your local bank these days.


However, anyone who thinks central banks don't view gold as important is simply out of touch with the facts. This new article by Ronan Manly at BullionStar.com lays out those facts pretty clearly. 


He simply asked the central banks around the world who own or hold more than 30,000 tons of gold why they own or hold it and most of them replied. Interestingly, the US did not reply. Below I have excerpted a bit of the concluding summary from the article.

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"In their own words, the reasons central banks hold gold in large quantities are many fold, however there are consistent themes in the central banks’ explanations. Many of the respondents cited gold’s ability to be mobilized in a crisis, that ‘gold holdings can be activated in an emergency’, that gold is an ‘emergency reserve in a crisis’, ‘a contingency against unforeseen events’, a form of ‘insurance’, or as the Bank of England says ‘a war chest’ and the ‘ultimate asset to hold in an emergency’. As such, nearly all central banks referred to gold as a safe haven asset.

Many central banks mentioned gold’s high liquidity, and some referred to the ability to use their gold to raise liquidity in a foreign currency, even for foreign exchange intervention.

Gold’s role as a hedge against inflation was cited in a number of the central bank answers, which explains why central banks look to the gold price as a barometer of inflation expectations.  

Many of the banks also pointed out that because of the unique attributes of physical gold, such as limited supply and mined into existence, gold does not have any counterparty risk or credit risk, and because it is not issued by governments, it has no default risk.

. . . . .

With such widespread support among the world’s central banks for holding physical gold, as a safe haven, as an inflation hedge, and as a form of investment diversification, their enthusiasm for gold in 2018 looks as strong as it has ever been in any decade of the modern era."


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My added comments: Russia and China were not part of this survey, but their actions in recent years of massive gold buying speak louder than words. This recent article details the enormous effort Russia is making to pile up gold reserves (click translate button to get the english version).

So we have the leading world powers (US, EU nations, Russia, China, etc) owning gigantic gold reserves (over 20,000 tons along with the IMF who owns over 2800 tons), but they don't view them as having any importance in the modern financial world? Amusing.

The most often cited reason by central banks for holding gold in this survey was basically "in case of an emergency". So, central banks want to have gold "in case of an emergency", but we often see financial articles suggesting it is silly for individuals to hold any gold for any reason. Amusing.



1- United States - 8133 tons
2- Germany - 3373 tons
3- IMF - 2814 tons (the BIS also owns 103 tons)
4- Italy - 2451 tons
5- France - 2436 tons
6 -China - 1842 tons (and rapidly growing)
7- Russia - 1838 tons (and rapidly growing)
8- Switzerland - 1040 tons
9- Japan 765 tons
10- Netherlands 612 tons

The next 40 countries making up the top 50 gold owners own over 6,800 additional tons of gold combined. Thirty five nations around the world own at least 100 tons of gold. But no one thinks owning gold is of any importance in the modern financial world? Amusing.

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Picture of some Russian gold reserves recently posted on Jim Rickards twitter feed:






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Added news note: Tonight (3-27-18) China says North Korea has agreed to denuclearize. 

http://www.scmp.com/news/china/policies-politics/article/2139207/kim-jong-un-says-he-committed-denuclearisation-during

https://www.cnbc.com/2018/03/27/north-koreas-kim-jong-un-visits-china-according-to-state-media.html

If true, this should remove this situation as something that could destabilize markets. I did mention this news to Jim Rickards and he is hopeful that it is real, but advises to continue to monitor the situation until more evidence surfaces to confirm it.



Saturday, March 24, 2018

Oilprice.com -- Will China's New Oil Futures Flop?

With the new Yuan based oil futures contracts set to open trading on Monday March 26th, Irina Slav pens this new article in Oilprice.com asking if one problem related to how these contracts work will cause them to fail. Below are excerpts from her article.

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"This week will see a historic event: on March 26, trading will begin in yuan-denominated crude oil futures contracts on the Shanghai International Energy Exchange. The futures launch is historic because it will be the first time that foreign traders will have access to a Chinese commodity market. It is also historic because the yuan oil futures have been in the making for years, but have been delayed time and again.

. . . . .

China last year became the world’s top oil importer, and this year it will likely keep the crown. The time is as ripe as it will ever be for the launch of the futures, and China is now trying to make sure that volatility will not be excessive. This, however, could compromise the success of the futures.

. . . . . . . .  only time will tell if the bigger goal could be achieved: displacing the dollar as the one and only petrocurrency in the world, part of Beijing’s strategy of advancing the country’s global influence by making the yuan an international currency."



Please click here to read the article to find out the specific problem she mentions


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My added comments: Many people are watching this new futures contract to see what kind of impact it may have on the so called "petro-dollar".  Some think it will be the start of the end of the US dollar as the global reserve currency. Others think this event will have little impact on the US dollar any time soon. Anything that did disrupt the US dollar as global reserve currency would be viewed as significant news here and relevant to potential monetary system change, so we will follow this event over time.

What we do here is follow news and events and report what actually happens which is much more important than what various people predict is going to happen. Readers can then assess how various predictions panned out versus what actually happened.

Added note: Judy Shelton tweets out a link to a Wall Street Journal article on the potential impact of the new petro yuan contracts. A lot of people are following it and there is a wide variety of opinion on the potential impact.

News notes from first day of trading: Reuters runs this article on the first day of trading and Zero Hedge reports that over 23,000 contracts trade in the first hour which they described as "significant demand".  Dr. Stephen Leeb offers his pro China views on the situation in this article.

Thursday, March 22, 2018

Atlanta Fed GDP Now Forecast

Many people follow the Atlanta Fed GDP Now forecast because it has tended to be more accurate more often than some other forecasts. But his quarter, they seem lost. Below I have pasted in their forecast model which has plunged from a projected high over 5% to now under 2%.  

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Evolution of Atlanta Fed GDPNow real GDP estimate for 2018: Q1


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Added note: Jim Rickards posted the track of this decline in this twitter post and also points out that he explained how the over 5% projection was way off base back in February in an appearance on Fox Business News. The discussion of the GDP Now number starts about the 2 minute mark where Rickards explains why the number changes during the quarter. Since we are now pretty close to the end of the quarter, the lower forecast should end up being more accurate.

Sunday, March 18, 2018

Robert Pringle - The Capture of Money

Whenever Robert Pringle offers a new article on his blog, I try to feature it here. Mr. Pringle has a long and established career working with central bankers from around the world. 


His decades of experience provide a valuable insight into the world of central banking that we don't see covered that well in mainstream media. Below are the opening paragraphs of his new article, The Capture of Money. In this article, he explains why he thinks "money has become an elite sport".




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"Money is a near-universal social institution. It  evolved to support human cooperation and to control and coordinate the life of humankind. Like other core institutions, such as marriage and language, the forms that money takes may differ widely. The values and norms governing money’s use, and the practices associated with it, also vary widely.

For the individual, money is also a psychological symbol. Money allows each person to enjoy the fruits of others’ work. For many billions of people, obtaining money is the sole purpose of their everyday life.

But there is a difference in how we, as individuals, treat marriage and language, on one hand and money on the other."


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Some info about Robert Pringle:

"After obtaining a Masters degree in economics, sociology and history from King’s College, Cambridge University and post-graduate study at the London School of Economics, Robert joined The Banker, part of the FT group, later being appointed the Editor.
He also served as deputy director of the Committee on Invisible Exports, a body representing a wide range of UK service sectors, which was set up by the Bank of England to study and publicise the contribution made by financial, business, professional and allied services to world trade and the UK economy. He led a study that made the first published estimates of the invisible earnings of UK professions such as law, medicine and accountancy.
From 1979 to 1986  he was the first executive director of the Group of 30, an influential think tank based at the time in the World Trade Centre, New York (it has since moved to Washington, DC). For the G30, Robert co-authored pioneering studies of the foreign exchange and interbank markets, and on IMF borrowing from the private markets, and the emerging profession of official reserve management."

Thursday, March 15, 2018

Bloomberg - How China is About to Shake Up the Oil Futures Market

The date for trading oil contracts in yuan is coming up on March 26th. We will keep an eye on this event to see how much impact it has. Bloomberg published this article (excerpt below) that is a pretty good summary of where things stand leading up to the opening of trading. 

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"China, the world’s biggest oil buyer, is opening a domestic market to trade futures contracts. It’s been planning one for years, only to encounter delays. The Shanghai International Energy Exchange, a unit of Shanghai Futures Exchange, will be known by the acronym INE and will allow Chinese buyers to lock in oil prices and pay in local currency. Also, foreign traders will be allowed to invest -- a first for China’s commodities markets -- because the exchange is registered in Shanghai’s free trade zone. There are implications for the U.S. dollar’s well-established role as the global currency of the oil market."



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My added comments: It appears that China is launching a PR campaign to try and convince the world that it is ready to open up its system so as to promote broader use for their currency. This article in RT is one example of that

We will just follow this to see what happens over time and how much impact this has on the US dollar.

Added news note: Xinhua.net runs this article on the launch of the new contract with these concluding comments:

"While foreign investors are allowed in the petro-yuan trade, Gu said there have been relatively few accounts opened by overseas clients, indicating concerns over market liquidity and regulatory uncertainties.

"It would be difficult to challenge the dollar's dominance in oil pricing in the short term," Gu said. "In the long term, however, multi-currency pricing will become a trend in the future."