Global Reserve Currencies: Special Drawing Rights and Bitcoin

Rage Comment : The value of the IMF's Special Drawing Rights is currently determined by a basket of reserve currencies consisting of the US dollar, euro, renminbi, yen and pound sterling, and has a stable currency weight. At present, the cryptocurrency field does not pay enough attention to the types of currencies in this system. But in fact, there are many defects in this system, including transparency, stability and security. These defects are precisely the opportunities for cryptocurrencies. If cryptocurrencies are used to increase the influence of individual and institutional factors in this world monetary system, it is possible to break the hegemony of the US dollar and petrodollar in the world.

Translation: Annie_Xu

The G20 summit was held in Hangzhou earlier this month. The most interesting topic at the meeting was the inclusion of the RMB in the Special Drawing Rights of the International Monetary Fund (IMF). This topic is very important, but it has not received the same attention in the cryptocurrency community.

The IMF reserves currencies to help it achieve its goal of ensuring the stability of the international monetary and financial system. Each country that joins the organization is allocated a quota, which is linked to its position in the international economy. The quota is in the form of Special Drawing Rights (SDRs); its value is determined by the weight of various currencies, currently the US dollar accounts for 41%, the euro 31%, the renminbi 11%, the yen 8%, and the British pound 8%.

The IMF Executive Committee reviews the valuation methods of various SDR currencies every five years, and can review them earlier if necessary based on the requirements of relevant institutions. The purpose is to ensure that this currency combination can reflect the importance of mainstream currencies in the world's trading and financial systems and increase the attractiveness of SDR reserve assets.

Christine Lagarde

IMF Executive Director Christine Lagarde said:

"The continuation and deepening of these efforts can lead to a stronger international monetary and financial system, which in turn will support the growth and stability of the Chinese and world economies."

SDRs will replace the US dollar as the world's reserve currency. Their low volatility makes them the best unit of account; objective multi-country currency value measurement is consistent with international law; many countries even peg their currencies to SDRs to increase transparency.

Although the IMF and SDRs are not necessarily the most ideal solution for creating a new international currency, as the United States has a veto and has already vetoed some reforms, it is a step in the right direction. And there is a major flaw in this solution, which is that countries without governments cannot join. This will limit the currency's utility in international settlements or its role in assessing the value of companies or individuals.

If SDRs were a public, tradable currency, there would be interesting applications for pricing goods, paying salaries, and fighting currency wars. If your salary is $3,000/month, you will receive the same amount of dollars regardless of whether the dollar appreciates or depreciates. But if your salary is 3,000 SDRs/month, you will receive the same value of currency every month regardless of whether the dollar appreciates or depreciates. This protects everyone from government intervention.

However, in the field of cryptocurrency, the idea of ​​creating a new currency based on a bunch of other currencies has also appeared. Paul Grignon, author of the book "Money as Debt", said that he formed the idea of ​​digital currency in 2009. Part of the system is called Perpetual Coin, which can be issued on the basis of other currencies. Unfortunately, the project has remained in the theoretical stage and the relevant website has been closed, so it is impossible to see it become a reality.

Paul Grignon

Paul Grignon said:

“The purchase price of Perpetual Coin can be determined based on the foreign exchange market.”

There is no cryptocurrency anchored to the SDR at present, probably because we already have an alternative currency that is superior to the SDR, Bitcoin. However, the price of Bitcoin is currently unstable, and it is not only inclusive, but also not currently affected by the government.

However, it is not difficult to create an SDR currency. It can be like Tether, or more like BitUSD; because you cannot withdraw these coins. The main problem with centralized currency issuance is to ensure the stability of the currency value, especially when the currency weight or currency combination changes. And once the currency is created, its international application will be interesting.

Maybe we will finally see what real demands companies and individuals have for SDRs, rather than governments. With luck, this might hasten the demise of the dollar or “petrodollar” hegemony.