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Chinese renminbi added to IMF basket of currencies

Monday, October 17, 2016 9:05
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A little over a year ago, the IMF announced that the renminbi, China’s currency, would be added the IMF’s “basket of currencies” that makes up SDRs (Special Drawing Rights).  A loud outcry ensued from many pro-gold analysts that the inclusion would mean the end of the dollar as the world’s reserve currency and would result in higher prices for gold.

As of October 1, the renminbi is the third largest component of the basket, but far smaller than the dollar and the euro.  Still, the renminbi’s share of the basket is larger than either the Japanese yen or the venerable British pound.

Things didn’t turn out as badly as analysts had predicted.  No sinking of the dollar; no huge rise is the price of gold.  Still it was a coup for the Chinese as they have long desired wider recognition for the currency that they can print at will as the Fed can print dollars, as the European Central Bank can print the euros, etc.

SDRs are mystical and are used only by the IMF to supplement countries’ official reserves. The value of SDRs is determined by the value of the individual currencies in the basket.

The inclusion of the renminbi is not monumental and today will have little to no effect on the dollar as the world’s preferred reserve currency.  However, it was an important accomplishment for China, a nation of patient people.  (Who else buries eggs for a thousand years?) The Chinese will build on it.

As this relates to gold, it is noteworthy.  The dollar has just a little more competition in the world monetary markets.  And, as gold trades inversely to the dollar (for Americans), when fewer dollars are bought the dollar weakens.

As noted here, in early 2012 the US used its political clout to shut Iran out of the SWIFT system for worldwide money transfers.  As a result, Iran agreed to take Chinese renminbi in payment for oil.  Small damage to the dollar, but a huge gain for the Chinese.

Afterwards, Russia and China agreed to accept each other’s currencies in trade.  Every transaction without the use of dollars damages the dollar–if ever so little.

Meanwhile, the dollar is strong because the euro and the pound are struggling with Brexit.  A strong dollar means gold and silver prices are suffering.

However, in the past, the best times to buy have been when the metals were out of favor.  I think that is true today.  None of the world’s monetary problems have been solved.  In fact, more problems surface daily.


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