American Dollar Getting Ditched by IMF

american dollar

American Dollar

The future of the world’s reserve currency may not hold the American Dollar

America’s debt crisis is having far-reaching repercussions. The recent debt debacle has caused the International Monetary Foundation (IMF) to contemplate replacing the United States dollar as the world’s reserve currency. Could this be the American dollar’s fall from grace?

The IMF disclosed recently that Special Drawing Rights (SDRs) could help stabilize the global financial system- at the expense of the American dollar that is.

According to CNN money, “SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs. While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar.”

China currency replaces dollar

China currency may be replacing the American Dollar

More than the IMF is calling for a change in the global economy. China is also in favor of this dramatic shift in economic power- hoping it would help salvage the global financial market and shift power away from the United States dollar.

The Wall Street Journal reported, “China called for the creation of a new currency to eventually replace the dollar as the world’s standard, proposing a sweeping overhaul of global finance that reflects developing nations’ growing unhappiness with the U.S. role in the world economy.”

Russia is also jumping on the “dump the dollar” bandwagon. The Wall Street Journal went on to admit, “Russia recommended that the International Monetary Fund might issue the currency, and emphasized the need to update ‘the obsolescent unipolar world economic order.’”

It seems America is falling out of everyone’s favor. This shocking news will certainly have very negative implications on the United States of America. Is this the end of a super power?

World leaders at a recent G-20 meeting agreed to create $250 billion worth of SDRs. But what is the G-20 organization?

g20 logo

G-20 Logo

According to the organizations website, the committee is composed of a group of twenty Finance Ministers and Central Bank Governors. The organization was established in 1999 “to bring together systemically important industrialized and developing economies to discuss key issues in the global economy.”

The organization was one of the main forces in the decision surrounding the global economic crisis back in 2008. The source claims “the G-20 members were called upon to further strengthen international cooperation.”

Nonetheless they have already decided and agreed to create the $250 billion in international currency.

The Times of India commented on this creation stating, “The IMF has since 1970 issued only 21.4 billion SDRs, worth $32 billion at today’s exchange rate. The proposed new issue worth $250 billion will be far larger. SDRs will probably be issued to countries in proportion to their IMF quotas. If so, two-thirds of new SDRs will go to rich developed countries. India will get just 2%, China just 3.7%. Hence, SDRs will hardly dent dollar dominance in global reserves or liquidity.”

India may not feel the SDRs will be able to challenge the America dollar, but its creation is still causing politicians enough distress that they feel the need to oppose it. Many politicians, specifically United States and German officials, oppose SDR creation. They claim it’s “funny money” which will inevitably cause inflation.

The Wall Street Journal opposes SDR creation, due to concerns that political enemies of the United States will benefit such as Venezuela, Iran, Sudan, Zimbabwe, Syria, and Myanmar.

The Times of India publication feels that even if President Obama is able to sway the United States congress to approve the proposed $250 billion worth of SDRs, they will never permit creation on a scale big enough to rival the dollar.

An important fact to understand is the SDR is not a currency in itself; rather SDRs are anchored in four existing currencies. Sources reveal, “The SDR is linked to a basket of currencies with a weight of 44% for the dollar, 34% for the euro, and 11% each for the yen and pound sterling.”

Since 44% of SDRs are backed by the United States dollar it seems odd that they would propose it to devalue America’s currency. So what is its exact purpose? How will it work?

Right now its purpose is not to replace the dollar, only diminish its influence. Replacement of the dollar is a daunting task; for the American dollar is securely embedded into every other form of currency and economic system out there.

Managing director of the IMF Dominique Strauss-Kahn realizes the “technical hurdles” involved with SDRs. Yet he believes they could help correct global imbalances and shore up the global financial system. He feels, “Over time, there may also be a role for the SDR to contribute to a more stable international monetary system.”

dollar and economy

What is the American Dollar's future amongst the global economy?

According to CNN, “The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.”

Chairman of the Federal Reserve Ben Bernanke commented on America’s economic position recently. He conveyed his feelings to Congress that the United State’s unemployment rate remains high while inflation is “still quite low.”

So it seems initial hype was wrong and the SDRs are not intended to replace the American dollar… yet. However, it is apparent that the United States deficit is causing the powers that be to shy away from the currency- as they are working to find ways to diminish its dominion.

This is not the end of the American dollar, but it certainly may be the beginning of the end. This first step towards strengthening other currencies may mark the start of a long journey towards a one-world international currency- one where America is no longer the main economic power.

One Response to American Dollar Getting Ditched by IMF

  1. Sirena Jordan says:

    Since its debut, CNN has expanded its reach to a number of cable and satellite television companies, several websites, and specialized closed-circuit channels (such as CNN Airport Network). The company has 36 bureaus (10 domestic, 26 international), more than 900 affiliated local stations, and several regional and foreign-language networks around the world. The channel’s success made a bona-fide mogul of founder Ted Turner and set the stage for the Time Warner conglomerate’s eventual acquisition of Turner Broadcasting.

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