IMF Loan to Ukraine in SDR, not US Dollars

This is the first that we know of a loan by the IMF, headquartered in Washington, DC, as specifying a loan in SDR (Special Drawing Rights) rather than in the customary US Dollar.  As with most policy changes from Washington, they ease changes into existence, this seems to be the start in the use of SDR’s.

If this is the start in the use of SDR’s, then in return it’s also the start in not using the US Dollar for IMF loans, which are essentially US Govt loans.

The IMF Ukrainian loan press release is viewable here:

We should not take this change lightly as this is a strong indicator and precedent of future IMF loans, and perhaps how the US Govt will begin conducting business - being once again that IMF loans are indistinguishable from US Govt loans. 

In a deeper view, several points should be clear:

  1. Ukrainian debtors, such as Gazprom and by defacto, Russia are willing to accept SDR’s 
  2. IMF is willing to write the loan in SDR’s
  3. US Govt is complying with its usage in place of the US Dollar

This being true, we have to consider the fact that the dollar is no longer sought after and considered as valuable worldwide, and perhaps won’t be of the same value during the course of the loan as it is today.

Furthermore, the world would be hording US Dollars and demanding loans in US currency if they thought its value would be increasing.  However, the opposite is occurring. If these countries are avoiding the US Dollar, then what are they doing with their stockpiles of US currency – buying hard assets.  From the Forbes article below China has been purchasing gold.

What can you learn from this transitional monetary situation  - China views gold as more valuable than US Dollars, Russia views SDR’s as less risk than US Dollars.  Russia sees more value in converting its oil revenue into gold, which is a dynamic financial twist in that the US Dollar has been used for all oil trades as the petro-dollar.  Consider that the IMF, China, and Russia are avoiding the US Dollar, and that these countries are converting revenue typically in US Dollars into gold.  For yourselves – consider the same conversion into gold, silver, and bitcoin and any other hard asset you are comfortable holding as a safe haven.

Doug Casey of Casey Research summarizes this situation very well:

Why Are the Chinese Buying Record Quantities of Gold?

This month, the Hong Kong Census and Statistics Department reported that China imported 102,779 kilograms of gold from Hong Kong in November, an increase from October’s 86,299 kilograms.  Beijing does not release gold trade figures, so for this and other reasons the Hong Kong numbers are considered the best indication of China’s gold imports.

Analysts believe China bought as much as 490 tons of gold in 2011, double the estimated 245 tons in 2010.  “The thing that’s caught people’s minds is the massive increase in Chinese buying,” remarked Ross Norman of Sharps Pixley, a London gold brokerage, this month.

Putin Turns Black Gold to Bullion as Russia Outbuys World

When Vladimir Putin says the U.S. is endangering the global economy by abusing its dollar monopoly, he’s not just talking. He’s betting on it.

Not only has Putin made Russia the world’s largest oil producer, he’s also made it the biggest gold buyer. His central bank has added 570 metric tons of the metal in the past decade, a quarter more than runner-up China, according to IMF data compiled by Bloomberg. The added gold is also almost triple the weight of the Statue of Liberty.

“The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency,” Evgeny Fedorov, a lawmaker for Putin’s United Russia party in the lower house of parliament, said in a telephone interview in Moscow.

Gold, coveted by Russian rulers including Tsar Nicholas II and the Bolshevik leader whose forces assassinated him, Vladimir Lenin, has soared almost 400 percent in the period of Putin’s purchases. Central banks around the world have printed money to escape the global financial crisis, sapping investor appetite for dollars and euros and setting off a scramble for safety.