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IMF Prepares Expanding The SDR Role
The IMF’s recent professional staff assessments highlighted that the IMS’ episodes of stress point to some weaknesses:
…including in external adjustment mechanisms; limitations of official liquidity provisions through the Global Financial Safety Net (GFSN); and large-scale reserve accumulation—with systemic side effects. Those weaknesses, together with the expansion of the SDR basket, have renewed interest in the SDR and motivated a discussion of whether there is an economic rationale for a broader SDR role. The paper looks into how those weaknesses can be mitigated by three concepts of the SDR: the official SDR, 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). However, the paper does not propose specific reform options. –IMF
Here are recent documents from the IMF:
- Read pdf Considerations on the Role of the SDR 11 April 2018
- Read Measuring the Digital Economy 5 April 2018
- Read Statement by the Managing Director on the Independent Evaluation Office Report on the IMF and Fragile States 3 April 2018
The Nigerian investadvocate.com.ng summarizes the IMF’s considerations:
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. –InvestAdvocate on 11 April 2018
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