Credit Suisse analyst Zoltan Pozsar says Ukraine triggered a perfect storm in commodities that could weaken the Eurodollar system, contribute to inflation in Western economies, and threaten their financial stability. Pozsar said China’s central bank is uniquely placed to backstop such crisis, paving the way for a much stronger yuan. Reuters , Mar. 13, 2022.
Saudi Arabia Considers Accepting Yuan Instead of Dollars for Chinese Oil Sales: Talks between Riyadh and Beijing have accelerated as the Saudi unhappiness grows with Washington. WSJ, Mar. 14, 2022
In 2009, after helping to rescue the US from the GFC, Zhou Xiaochuan, Governor of the Peoples Bank of China, said, “The world needs an international reserve currency that is disconnected from individual nations and able to remain stable in the long run, removing the inherent deficiencies caused by using credit-based national currencies.”
After helping rescue America from the GFC, PBOC Governor Zhou Xiaochuan observed, “The world needs an international reserve currency that is disconnected from individual nations and able to remain stable in the long run, removing the inherent deficiencies caused by using credit-based national currencies.”
Zhou proposed SDRs, Special Drawing Rights, a synthetic reserve currency dynamically revalued against a basket of trading currencies and commodities. Broad, deep, stable, and impossible to manipulate. Nobelists Fred Bergsten, Robert Mundell, and Joseph Stieglitz approved: “The creation of a global currency would restore a needed coherence to the international monetary system, give the IMF a function that would help it to promote stability and be a catalyst for international harmony”.
Here’s what happened since then:
2012: Beijing began valuing the yuan against a currency/commodity basket
2014: The IMF issued the first SDR loan
2016: The World Bank issued the first SDR bond
2017: Standard Chartered Bank issued the first commercial SDR notes.
2019: All central banks began stating currency reserves in SDRs
Mar. 14, 2022: “In two weeks, China and the Eurasian Economic Union – Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan – will reveal an independent international monetary and financial system. It will be based on a new international currency, calculated from an index of national currencies of the participating countries and international commodity prices”.
The currency resembles Keynes’ invention Special Drawing Rights.SDRs are a synthetic currency which derives its value from a global, publicly traded basket of currencies and commodities. Immense beyond imaging, and stable as the Pyramids. Everyone gets a seat at the table and a vote. It may eventually be administered by an arm of the UN.
SDRs pose a serious alternative to the US dollar, both for the EAEU, the BRI’s 145 member states, the Shanghai Cooperation Organization (SCO), ASEAN, and the RCEP. Middle East countries, including Egypt, Iran, Iraq, Syria, Lebanon, are keenly interested.
Less well known is that the EAEU, the BRI, the SCO, ASEAN, and the RCEP were discussing a merger before the currency news hit.
It is reasonable to expect them to join this new, cooperatively managed, stable reserve currency regime in which they can settle their trades in stable, neutral, predictable SDRs.
Godfree Roberts wrote Why China Leads the World: Talent at the Top, Data in the Middle, Democracy at the Bottom, and publishes the newsletter, Here Comes China.