www.zerohedge.com
The full article with additional charts and tables is published
on GoldMoney.com can be downloaded
here.
On April 1, 2016,
China’s central bank Governor Zhou Xiaochuan announced that the Chinese
government will take actions to promote the use of SDRs in its do-mestic
economy. The announcement was made at the end of a meeting of the G20
in Paris, which is hosted by China this year. China will start to use
both the USD and SDRs when reporting its foreign reserves. In addition,
the country will also consider issuing bonds denominated in SDRs. This
comes five month after the International Monetary Fund (IMF) decided to
include the Chinese Renminbi as a fifth currency to the basket of
Special Drawing Rights (SDR) along with the U.S. dollar, the Euro, the
Japanese yen and the British pound. The change takes effect on October
1, 2016. This marks the first major change of the constituents of the
basket since 1981 when the IMF dropped 11 out of 16 currencies in the
orig-inal basket. However, when the SDR was introduced in 1969, it was
not based on a basket of currencies but linked to gold, 0.888671 grams
to be precise, which, at the time, equaled exactly 1 US dollar. The SDR
basket based on the original weighting of 16 currencies declined around
87.7% in value vs gold until today. Similarly, the basket introduced in
1978 has lost 84.4%. The smaller 5 currency basket introduced in 1981 is
down 55.5% and the current basket is down 77.0% since its intro-duction
in 2001.
Taking interest payments into account hardly changes the outcome. It is
obvious today that for net holders of SDRs, breaking the link to gold
had a negative impact on their reserve value. This is hardly surprising
as any currency has under-performed gold over the past 10 years and any
timeframe beyond that. Hence, it’s not that the currencies in the basket
were Summary poorly chosen or poorly weighted, no combination would
have managed to do better than gold, whether the RMB would have been
part of the basket all along or not. While it is far too early to
conclude that China is challenging the dollar's dominant reserve
position, RMB inclusion in the SDR will nevertheless have a profound
impact on percep-tions not only of China's growing economic power
generally but monetary power specifically. But while the impact of the
inclusion of the RMB should not be underestimated, it is unlikely that
this will change the trend that gold outperforms any fiat currency.
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