Speaker 1: In 1969, the International Monetary Fund IMF tried to create something never attempted before, they created an international currency, which they called the Oz special drawing rights. They did this to prepare for a huge dollar crisis. And this didn’t quite work out for them 50 years ago. The currency kind of died out. That is up until now.
In 2021, Janet Yellen gets elected as the 78 secretary of the Treasury of the United States and she begins to make some major changes. She writes to the G20, the most powerful economic forum calling for the resurgence of ideas. The proposal is to have six hundred and fifty billion dollars of SDR created out of thin air and given to the member countries of the IMF. Now, this sounds well and good. New money created. We can use this money to help with the pandemic and we can solve some of the liquidity issues around the world. But what they don’t talk about is the consequences that this proposal has, the devaluation of currencies across the globe. Let’s keep that one in the fine print. The move towards killing the U.S. dollar as the world’s reserve currency. Let’s not mention that the fact that China is pushing for this proposal to go ahead and how they benefit in the global superpower race, these are just some of the consequences that come with the resurgence of these special drawing rights. Now, it’s important that you understand how all of this works. So let’s get into a bit of history. 1944 was one of the most important years in economic history. This was the year when the Bretton Woods system was signed and the dollar was pegged to gold. I was promised that you can go to the bank and convert your dollars into physical gold. And they managed to keep this promise for a good couple of decades until the late 1960s hits in the late 60s, more and more countries want to convert their surplus dollars into physical gold. But the problem was there wasn’t enough gold for all of the dollars that had been created.
This was when the IMF steps in and makes a new asset class to accounts for the shortfall. In 1969, they created a reserve asset, which they called Special Drawing Rights SDR, a type of international currency, something we’d never seen before. However, just two years later, this wasn’t needed anymore. In August 1971, Nixon comes out and he’s shocked the world. He abolishes the gold standard, saying that the dollar is no longer able to be converted into gold. Of course, pandemonium follows a dollar crisis on shoes and inflation rises to ridiculous rates. And the IMF says the US currency gets almost forgotten. That is, until just over 50 years later, something unprecedented happens. A worldwide pandemic hits the entire globe, and countries throughout the world are in need of money for health, for infrastructure. They need cash to get things somewhat back to normal. The IMF thinks this is the perfect time to reignite our international currency and grow the influence of was the previous US administration. The Trump one is totally opposed to this idea, but the new administration comes in and appoints Janet Yellen as the seventy eight secretary of the Treasury of the United States. Straight away, she writes to the G20, calling for an allocation of stars to be given out to member countries. And not just the little. A lot you see, prior to this, there was only around 200 billion dollars of SDR ever allocated. The new proposal is to issue six hundred and fifty billion dollars worth triple the amounts that has ever been released over the past 50 years. And they want to do this in the click of a finger literally these days. That’s all they have to do, press a button on a computer and billions of dollars of this new currency can be created. So why is the IMF looking to do this? First of all, they have countries around the world looking to them and saying, we need your help with struggling with this pandemic. Can you give us some money for support? And the IMF, they have a maximum of a trillion dollars of assets available and they needed more money if they wanted to send it out to their member countries to help them. So they had to come up with a new trick or else they could not give the money to the countries that wanted it. So they thought, remember that currency that we created 50 years ago that didn’t really work out. Let’s revitalize it. We can create extra money with it and then give it out to all member countries. However, the. USA opposed this up, and so the new administration, they were totally against these SDR proposals and China was all in favor of them. So the question is, why did the previous administration oppose the six hundred fifty billion dollars of new ideas? Because on paper, everything looks great. You create new money. You give out this money to countries that are struggling with the pandemic. It’s a direct liquidity boost to all member countries without adding to debt burdens. All well and good, right?
Unfortunately, it’s Economics 101 that every decision that you make has its own consequences. And surprise, surprise, magically forming this new international currency and handing it at some member nations has its consequences. And to understand these costs, you need to know how these ideas work. And SDR is basically a claim on a basket of five currencies, forty one point seven percent, the U.S. dollar thirty point nine percent, the euro, ten point nine per cent. The Chinese yuan eight point three percent, the Japanese yen. And lastly, eight percent the pound essentially there. Another layer added on to money where if you own an SDR, you have a claim on these freely usable currencies of IMF members. So what’s the problem with producing more of these to give liquidity to countries struggling with a pandemic? The problem is the everyday person suffers because it’s a further debasement of world currency. When you create money out of thin air. And this money is a claim on the US dollar, the yuan, the yen, the pound, the euro, all of these currencies become weaker. It’s like if you have a drink of Coca-Cola and it fills half the glass, you then for the rest of the glass with water and you say, look, you’ve now got double the amount of a drink. The problem is that your drink has become weaker. It’s been watered down. It’s the same thing that is happening with world currencies. They’re getting watered down with these ideas that have magically been created out of thin air. And it’s the average person that suffers, let’s say the average Brits. He’s been saving his money all of his life. He keeps it in the bank. That money is now worth less. Same with hardworking people throughout Europe, with the euro, the Japanese with the yen, the Chinese with the yuan. And it affects the Americans the most because the U.S. dollar has a forty one point seven per cent weighting to the SDR.
It’s the financially responsible citizens that suffer. And one question that is commonly asked from the economists that have analyzed this is why was the previous US administration so against the SDR proposal and why was China pushing for it to go forward? This is more than just a debasement of world currencies. The underlying factor that we need to realize is the U.S. and China are in a race right now, a race to see who can be the global economic force of the world. Right now, the USA is in the lead, but China is quickly catching up. And one of the ways that we know the USA is in the lead is because they hold the trump card. Pardon the pun. I don’t mean the previous presidents. I mean the fact that the US dollar is the world’s reserve currency. More than sixty one percent of foreign bank reserves are denominated in US dollars, and nearly 40 percent of the world’s debt is in dollars. This gives the USA tremendous power and China doesn’t want this. They’ve have been very vocal about increasing the supply of stars, hoping that this will become a replacement of the dollar. As the world’s reserve currency, we can use the stars to price gold, oil and other commodities. But the problem is this means that the USA loses one of its most prized possessions of being the world’s reserve currency. China is happy because it helps them in the economic rice, and the IMF is happy because it gives them tremendous power. They can expand their balance sheets and grow towards being the world’s central banker. This would be a radical shift in the way the system operates money today and would rarely flip the economic world on its head. But we’re not there yet. The IMF doesn’t have this much power. As of today, however, what we have seen is a big shift to the amount of their international currency that they can produce allowed by the U.S. administration. Over the past 50 years, since these were created, they made 200 billion dollars worth of it’s this new proposal is triple. That’s worth 650 billion made in the click of.
The fingers, yes, this money will provide liquidity for countries around the world who wants it, but it revitalizes the currency we once thought was distinct. This weakens the value of currencies around the globe. This threatens the integrity of the US dollar being the world’s reserve currency. And China, like its.