Why SDR Matters to Metals

Source:

". . .many suspect SDRs could soon become the world's reserve currency."

Special drawing rights (SDRs) are a type of off-the-wall currency floated around the IMF. To keep everything clean, orderly and honest (as much as possible with an institution more powerful than most national governments), the IMF created the SDR to easily exchange a country's reserves for individual currencies. When a country possesses 1 SDR, it actually owns a basket of world currencies, and many suspect SDRs could soon become the world's reserve currency.

What Makes up a SDR?

A special drawing right is made up of 44% USD, 34% euros, 11% yen and 11% pound. These figures change every five years as a matter of a vote, and a reallocation is made in part by calculating the change in influence each nation has in international trade.

By allocating the value of the SDR to multiple currencies, nations can easily exchange their currency for the basket and make loans to one another in a system that is generally safe due to diversification. Of course, since all the currencies in the basket are fiat, there is inflation risk.

Why It Matters to Metals

Precious metals aren't priced in SDRs, which are priced in USD. Of course, the USD's value is dependent not on gold, silver or precious metals, but rather the confidence one entity has in that another will accept it.

Because the USD now functions as the reserve currency of the world, it should be expected that a further dilution of the dollar in the SDR, coupled with the implementation of the SDR as a world currency, will only decrease demand, as well as the value of the USD. Should this change occur, precious metals prices should only rise, as the dollar devalues itself and the world finally assumes a reserve currency dependent on every other world currency.

The SDR could replace metals, but unlike fiat, the amount of metals will never ever be determined by the number printed on them.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe