from Rogue Money:
A few weeks ago, the IMF entered into an agreement with China to allow the Asian power to begin financializing M SDR bonds once an audit was completed regarding their reserves and banking system. And on Aug. 12, the World Bank publicly gave their approval as well to China, which in the coming months will be the sole authority in issuing M SDR denominated bonds for use in international settlement.
Underlying the significance of this new program is that two Western financial entities are providing tacit approval to China rather than the United States, and are entering into the first major step towards ending the polar global reserve currency system that has been prevalent in the world since the Bretton Woods agreement of 1946.
China’s central bank said Friday that it has approved a World Bank unit to issue bonds denominated in special drawing rights (SDR) in the country’s interbank bond market.
The International Bank for Reconstruction and Development was approved to issue 2 billion SDR (2.79 billion U.S. dollars) of bonds, the People’s Bank of China said in a statement on its website. Chinese yuan will be the currency of the settlement.
The first batch of bonds will be put on the market soon, said the statement, though a detailed schedule was not provided.
The inclusion of yuan in the IMF’s reserve currency basket, known as the SDR, will take effect in October.
In addition to China soon becoming the caretaker of SDR internationalization and distribution, the Chinese central bank also reported this week that use of their currency has increased in one year by over 21% in cross-border settlement. This means that the use of the RMB more than the dollar is becoming the preferred currency for direct bi-lateral trade.
Chinese currency is increasingly being accepted in cross-border transactions, as the currency gains increased global recognition, a central bank report said Wednesday.
In 2015, the volume of cross-border renminbi receipts and payment reached 12.1 trillion yuan ($1.83 trillion ), an increase of 21.7 percent year on year, according to data released by the People’s Bank of China (PBOC).
It accounts for nearly one third of the total volume of cross-border receipts and payments.
China has aggressively promoted global use of the renminbi, as the world’s largest trading nation looks to lower transaction costs in international trade, which currently is mostly settled in US dollars.
— China Daily
Over the past two years, China has said explicitly that they do not wish to supplant the dollar and become caretakers to a singular global reserve currency, but rather to incorporate a basket of currencies to act in this position. And interestingly enough, their acceptance into the IMF’s SDR program while also being given the authority to administer and propagate it globally, shows just how far China has grown in being recognized as the future manager over global finance.
Right now, China owns several of the world’s largest banks, including the number one spot with the Industrial and Commercial Bank of China (ICBC). In addition, they are the world’s largest industrial economy which makes them a perfect candidate to manage the next reserve currency instrument and expand its use across the globe.
As we know from China historically, these new steps are just the beginning of a much grander overall plan, which one day will see the RMB, the SDR, and all global trade become one where letters of credit are once again are undertaken through a new form of a gold standard.
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