G20 and SDRs

One of the lesser emphasised points coming out of last weeks G20 meeting was the announcement of additional money for the beleaguered world economy including the provision of $250 billion via Special Drawing Rights (SDR’s) from the IMF. Whilst not technically being a currency itself, SDR’s are based on a basket of major fiat currencies the US dollar, Euro, UK pound and Japanese Yen.

In a week in which both the Russians and Chinese have made noises about an alternative to the worlds current defacto currency – the US dollar – due to its projected instability, the SDR have come more into potential focus. But this hides a multitude of problems. The currencies making up SDR are all fiat paper based currencies and as the dollar, euro and pound are all subject to quantitative easing, and potential ruinous growths in their money supply – SDR will suffer from the same problem as the dollar – inflation.
Russia has been moved to question the stability of the dollar and even raised the question of including gold in a future global currency to strengthen the position of those most at risk from the depreciation of their dollar assets which is also a Chinese concern.
http://www.reuters.com/article/marketsNews/idUSLS37648120090328

SDR’s are also associated with IMF policies as highlighted in the article below:
http://www.economist.com/finance/displaystory.cfm?story_id=13447239

The boost to reserves promised by the G20 nations is unlikely to be as grand as Gordon Brown would have us believe. The rules of the game state that the money will go to all the nations in proportion to their IMF quotas which includes those same G20 nations (another way of printing money to then give back to themselves). The emerging nations that are most in need will struggle to see anything meaningful from these public relations maneuvers as the largest nations take the lions share of the cut.

But then again receipt of IMF money has always been a poisoned chalice, what with all the attendant “conditionalities” that the US/UK dominating IMF put on the nations that are unfortunate enough to be recipients of IMF “aid”. Currency depreciation, privatisation of key assets, liberalising financial markets and the removal of subsidies to key goods have all characterised the punishments imposed on the weaker nations by the IMF. Not that the new poor (US/UK) are likely to be bothered to adhere to IMF guidelines for the indebted, the US is the worlds largest debtor by some degree – and the UK has been forecast to be in need of IMF loans itself.