|
"...Take a
look at this Global Gold Index, showing the price of gold against the world's
top 10 largest currencies..."
BACK IN 1969 the
International Monetary Fund (IMF) created a new kind of money – the
ultimate form of international money, it believed – called the Special
Drawing Right.
You can't shop with an
SDR, nor trade it or even touch it. Unless you crunch numbers for an
international organization like the IMF, Andes Reserve Fund, the Arab
Monetary Fund, or the Bank for International Settlements (BIS) in Basel, the
only time you're likely to come anywhere near an SDR is if an airline loses
your luggage.
The Montreal Convention
states that if your bags have not reached you within 21 days of expected
arrival, you can claim 1,000 Special Drawing Rights as compensation from the
airline.
At today's valuation, that
would mean you receive around $1,500...or £770...or €955...or
¥159,000. Because you can't be paid in SDRs. In
reality they don't exist. Only a government-issued paper money can bring the SDR's value into existence.
"Monetary Gold and SDRs issued by the IMF are financial assets for which
there are no corresponding financial liabilities," explains the Monetary
Fund. But while Gold holds value for people earning all kinds of currency
across the world, the SDR is simply an intangible monetary unit. It exists as
an accounting tool only, used by the world's central banks and cross-border
monetary organizations.
The value of each Special
Drawing Right is calculated as a blend of the Euro, Yen and British Pound's
value against the other member of the four-currency basket – the Dollar.
Each SDR equalled precisely $1 when the new units
were created in 1969. In
terms of the world's previous international currency – Gold Bullion
– it equalled 0.89 grams.
Given how the US Dollar
has fared against the other major world currencies over the last five years,
it's worth asking how it has performed against the SDR.
As this chart shows, while
the Dollar lost almost half of its value against the Euro since 2002, it has
lost "only" one-third against the unreal, intangible SDR.
Most of the difference
comes thanks to the Japanese Yen also losing favor against the Pound and the
Euro – the other two members of the SDR basket. But they in turn keep
losing value against the goods and services people actually use them to buy.
So wouldn't a different
yardstick prove more useful for the IMF and other international bodies? The
IMF itself has called the SDR "paper gold". And if we looked
instead to that truly international unit of money – a unit which does
in fact exist – what might gold say about the world's currencies today?
This chart shows the price
of gold in terms of the world's 10 largest currencies over the last eight
years.
Weighted by size of
economy (GDP) and rebased each year as different economies change positions
inside the top ten, this Global Gold Index now shows the value of Gold for
well over half of the world's population. And its composition has changed
dramatically over the last eight years.
In the year 2000, the US economy
accounted for 40% of world GDP. By 2007 that had fallen to barely 30%. The
tiger economies of India
and China,
on the other hand, have moved higher up the list as their aggregate demand
has increased.
China has increased its GDP more than five times over
between 2000 and 2008. Its share of this Global Gold Index has gone from 5%
to almost 16%, while Canada
has gone from sixth place to 10th and the United Kingdom has slipped from
fourth to 6th.
"Monetary gold and SDRs issued by the IMF are financial assets for which
there are no corresponding financial liabilities," as the Monetary Fund
says. But while the SDR is an intangible monetary unit that only holds value
when turned into Dollars, Euros, Yen or Pounds Sterling, Gold remains a
tangible and highly liquid asset across the world – qualities that the
SDR so obviously lacks.
The only time most people
will, if ever, come into contact with SDRs is if an
airline loses their luggage. But how many people across the world continue to
demand gold as a "financial asset for which there is no corresponding
liability"...?
Olivia & Tatiana Van Vredenburch
Adrian Ash
Head of Research
Bullionvault.com
City
correspondent for The Daily Reckoning in London,
Adrian Ash
is head of research at www.BullionVault.com
– giving you direct access to investment gold, vaulted
in Zurich, on
$3 spreads and 0.8% dealing fees.
Current gold price, no delay | FAQ | Detailed outlook for 2007
Please
Note: This
article is to inform your thinking, not lead it. Only you can decide the best
place for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
| 
