In the following
article the term Special Drawing Right [SDR] is used frequently. A brief
explanation of an SDR is provided below together with its current value
[which floats] in U.S. Dollars.
According to the IMF:
The
currency value of the SDR is determined by summing the values in U.S.
dollars, based on market exchange rates, of a basket of major currencies (the
U.S. dollar, Euro, Japanese yen, and pound sterling). The SDR currency value
is calculated daily and the valuation basket is reviewed and adjusted every
five years.
And here’s
how SDRs are valued:
Tuesday, March
16, 2010
|
Currency
|
Currency
amount under Rule O-1
|
Exchange rate 1
|
U.S. dollar
equivalent
|
Percent
change in exchange rate against U.S. dollar from previous calculation
|
Euro
|
0.4100
|
1.37150
|
0.562315
|
-0.029
|
Japanese
yen
|
18.4000
|
90.67000
|
0.202934
|
0.011
|
Pound
sterling
|
0.0903
|
1.51370
|
0.136687
|
0.625
|
U.S.
dollar
|
0.6320
|
1.00000
|
0.632000
|
|
1.533936
|
|
U.S.$1.00 = SDR
|
0.651918 2
|
-0.046 3
|
SDR1 = US$
|
1.53394 4
|
|
Last
week, one of my subscribers alerted me to the Q4/09 Federal Reserve Flow of
Funds Report, published on Mar. 11, 2010, showing the
“back-dating” of gold / SDRs in Q3/09.
To see this, go
to the Fed's "flow of funds report" Q4/09 released March 11, 2009
at this link: http://www.federalreserve.gov/releases/z1/Current/z1.pdf
Scroll down to page 24 –
Fed’s Flow of Funds with Rest of World: Here, it’s
important to understand that the Federal Reserve is no more Federal [dare
we say foreign?] than Federal Express. While viewing this chart,
consider the following excerpts [minutes] from a 1992
FOMC meeting [hat-tip, Adrian Douglas]:
CHAIRMAN
GREENSPAN. Did I hear you correctly when you said that the gold exports in
October appear to have come from the coffers of the Federal Reserve Bank of New
York? Has anyone looked lately?
MR.
TRUMAN. Well, I didn't want to tell too many secrets in this temple!
VICE CHAIRMAN CORRIGAN. Obviously,
we knew what happened to the gold, but I don't think we knew what it did to
exports.
MR. TRUMAN. What
happens in the Census data is that the Federal Reserve Bank of New
York is treated as a foreign country. [Laughter] And
when a real foreign country takes some of the gold out of New
York and ships it abroad, it counts first as imports
and then as exports. However, the import side is not picked up in the Census
data. So there you get the export side of it.
MR.
LAWARE. Great accounting!
MR.
BOEHNE. Great confidence building!
MR. TRUMAN. That's because you
haven't been filling out your import documents!
MR. ANGELL. Let me run this by
again. You mean a country owns gold and has it stored in the Federal Reserve
Bank of New York
and if they ship it out, that's an export?
MR. TRUMAN. And in the balance of
payments accounts it also counts as an import, so it washes out.
CHAIRMAN
GREENSPAN. The Federal Reserve Bank's basement is a foreign country. When
they move it out of the basement into the United
States, it's an import. Then, when they ship
it out again, it's an export.
MR.
ANGELL. That makes sense!
MR. TRUMAN. And sometimes when
they sell the gold, it might be sold into the United
States, so it should count as an import. It
doesn't necessarily always show up as an export.
MR.
BOEHNE. That really clarifies it!
MR. KELLEY. Does it have to get
out of your vault at all in order to be considered an import and an export?
VICE CHAIRMAN CORRIGAN. Well, I'm
not even going to try to answer that. In this particular case I know what
happened, so I think. ...
Scrolling down to
line # 14 on page 24 and note the date of the report, that being, March 11,
2010. It states that the U.S.
[not the Fed] had “net sales” of 190.9 billion dollars worth of
gold / SDRs in Q3/09. 190.9 billion @ 1,000 per ounce would be 5,937 tonnes
of gold:
![](http://www.24hgold.com/24hpmdata/articles/2010/03/img/20100317CLA16071.jpg)
Note when the
same flow of funds report for Q3/09, published on Dec. 10, 2009,
at this appended link - there was no mention of Q3/09 gold / SDR sales -
period: http://www.federalreserve.gov/releases/z1/20091210/z1.pdf
![](http://www.24hgold.com/24hpmdata/articles/2010/03/img/20100317CLA16072.jpg)
Note the HUGE
size of the transaction, which in bullion terms, at 1,000 per ounce would
represent ¾ of all sovereign gold alleged to be held by the U.S.
Secondly, note that the authors of this report [that being the Fed] did not
report this MASSIVE transaction in the quarter which it
occurred. Additionally, when this transaction was finally allocated it
was not highlighted, asterisked, or footnoted as having occurred in a period
other than the current reporting period [most people only look at the current
period]. What is one to think of this style of reporting of such a
major transaction involving a notional amount representing ¾ of the
entire U.S.
sovereign gold reserve?
Also take note
how, at the same time that the U.S. had “net sales” of SDRs /
gold – there appeared in the Fed’s flow of funds – a
similar dollar amount being credited [also back-dated] to the U.S. Government
[Treasury] – from page 23, line 28 – Federal Government:
![](http://www.24hgold.com/24hpmdata/articles/2010/03/img/20100317CLA16073.jpg)
The “net
sales” of SDRs / gold in the first table above are best described by
James Turk:
“New
SDRs were created [out of thin air] by the IMF in Aug 2009, some of which
were allocated to the US.
But the Treasury can't spend SDRs, so it needed to turn them into
dollars. In other words, the Treasury needed to monetize these SDRs to
make them useful to it. So they sent their SDRs to the Fed, which then
credited the equivalent amount of dollars in the Treasury's checking account
at the Fed. SDRs are turned into US dollar currency the same way the
Fed turned the US Gold Reserve into dollar currency. You can see that
the SDRs were turned into dollar currency on the Fed's balance sheet.” http://www.federalreserve.gov/releases/h41/20091001/
The SDRs created
by the I.M.F. which Mr. Turk speaks of are explained in this press release by
the I.M.F.:
IMF
Executive Board Backs US$250 Billion SDR Allocation to Boost Global Liquidity
Press Release No. 09/264
July 20, 2009
The Executive Board of the International Monetary Fund (IMF) has backed an
allocation of Special Drawing Rights (SDRs) < http://www.imf.org/external/np/exr/facts/sdr.htm>
equivalent to US$250 billion to provide liquidity to the global economic
system by supplementing the Fund’s 186 member countries’ foreign
exchange reserves. The equivalent of nearly US$100 billion of the new
allocation will go to emerging markets and developing countries, of which
low-income countries will receive over US$18 billion. The proposal <
http://www.imf.org/external/np/exr/faq/sdrallocfaqs.htm>
will now be submitted to the IMF’s Board of Governors for final
approval.
“The SDR allocation is a key part of the Fund’s response to the
global crisis, offering significant support to its members in these difficult
times,” IMF Managing Director Dominique Strauss-Kahn said.
The SDR allocation was requested as part of a US$1.1 trillion plan < http://www.imf.org/external/np/exr/faq/sdrfaqs.htm>
agreed at the G-20 summit <
http://www.londonsummit.gov.uk/en/summit-aims/summit-communique/
> in London in April and endorsed by the International Monetary and
Financial Committee (IMFC) to tackle the global financial and economic crisis
by restoring credit, growth and jobs in the world economy. If approved by the
Board of Governors with an 85 percent majority of the total voting power in a
vote scheduled to close on August 7, the SDR allocation will be in effect on
August 28.
"The allocation is a prime example of a cooperative monetary response to
the global financial crisis," the Managing Director underscored.
The SDR allocation <
http://www.imf.org/external/np/tre/sdr/proposal/2009/0709.htm
> will be made to IMF members that are participants in the Special
Drawing Rights Department <
http://www.imf.org/external/pubs/ft/pam/pam45/pdf/chap3.pdf>
(currently all members) in proportion to their existing quotas in the Fund, which
are based broadly on their relative size in the global economy. The operation
will increase each country’s allocation of SDRs by approximately 74
percent of its quota, and Fund members’ total allocation to an amount
equivalent to about $283 billion, from about $33 billion (SDR 21.4 billion).
SDRs allocated to members will count toward their reserve assets, acting as a
low cost liquidity buffer for low-income countries and emerging markets and
reducing the need for excessive self-insurance. Some members may choose to
sell part or all of their allocation to other members in exchange for hard
currency--for example, to meet balance of payments needs--while other members
may choose to buy more SDRs as a means of reallocating their reserves. In
supporting the allocation proposal, the Executive Board stressed that it
should not weaken the pursuit of prudent macroeconomic policies, and should
not substitute for a Fund-supported program or postpone needed policy
adjustments.
Bait and Switch
The I.M.F.
liquidity injection outlined above was designed to replace the maturing
Central Bank Swap Lines – which coincidentally had brought a great deal
of scorn on the U.S. Federal Reserve. Do you all remember how the
maturity of the Central Bank Swap lines without renewal was sold [as in a
bill of goods] in the mainstream financial press as a sign of a global
financial recovery?
The reality is
that temporary liquidity measures were made permanent – thanks to the
benevolence of the I.M.F.
Announced Date
|
Expired Date
|
Participating Foreign Central
Banks
|
Maximum Authorized Amount
|
4/6/2009
|
10/30/2009
|
Eurozone, Japan, England,
Switzerland
|
$286 billion
|
10/29/2008
|
4/30/2009
|
Brazil, Mexico, Korea,
Singapore
|
$120 billion
|
10/28/2008
|
4/30/2009
|
New Zealand
|
$15 billion
|
9/24/2008
|
1/30/2009
|
Australia, Sweden, Norway, Denmark
|
$30 billion
|
9/18/2008
|
1/30/2009
|
Canada, England,
Eurozone, Japan, Switzerland
|
$180 billion
|
The balance of
this article is for subscribers. Rob Kirby is the editor of the Kirby
Analytics Bi-weekly Online Newsletter, which provides proprietary
Macroeconomic Research. Subscribe here.
Rob Kirby
KirbyAnalytics.com
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