Wednesday, September 2, 2009

China to Buy Up to $50 Billion of First-Ever IMF Bonds

The Chinese government has agreed to purchase up to $50 billion worth of International Monetary Fund bonds, according to the IMF. These are the first bonds ever issued by the IMF.

The big news here is that the bonds will be paid for by the Chinese with dollars but the bonds will be denominated in Special Drawing Rights (SDRs), not dollars. Based on the current conversion price between dollar and SDRs, the Chinese will end up with 32 billion worth of SDR denominated bonds

It's another move away from the dollar as a reserve currency, though a move the U.S. government probably supports, as the best of many bad scenarios, since the SDR is a basket of currencies that includes the dollar.

If there is a panic out of the dollar at some point, the Treasury has probably drawn up plans to attempt to direct that panic towards SDRs.

2 comments:

  1. IMF Bonds?

    Sounds scary. Is this one more move towards a centralized world banking system?

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  2. I don't blame them (the Chinese), but do they really think SDRs are going to be better pieces of paper than dollars?

    They're all just pieces of paper, no matter what picture is drawn on them. It's still only a piece of paper with absolutely nothing behind it.

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