What If.....
An SDR based instrument is created to compete head on with t-bills?
They've already put up a reform focused website:
http://www.imsreform.org/reserve.html with lots of new postings this past week.
A few quotes from:
http://www.imf.org/external/np/pp/eng/2011/010711.pdf
Develop a new reserve asset: Issuance by the Fund (or related investment vehicle) of SDR-denominated securities in sufficient volume could offer a safe haven in the event of disorderly diversification out of the existing stock of assets, as well as offering an alternative mode of Fund borrowing at time of high potential demand for its resources.
Reduce impact of exchange rate swings: The SDR unit of account could be used to price global trade, denominate financial assets, peg currencies, and keep accounts and official statistics. The SDRâs basket characteristic provide a less volatile unit of account and store of value than its components when measured in domestic currency terms, thereby helping cope with exchange rate volatility for both the official and private sectors (see Box 1). These benefits are all the greater as the use of the SDR in both goods and asset markets is developed. Such development would allow the SDR to serve as focal point for IMS evolution, a more efficient outcome than several
segmented markets in various national currencies.
Regarding official SDRs
With their use limited to the official sector, official SDR holdings provide an imperfect reserve asset, as they cannot be used directly for market intervention or liquidity provision.
There are tight legal and political constraints to expanding the use of the official SDR, such as the need for an amendment of the Articles to change the way SDRs are allocated or the need for an 85 percent majority of voting power to agree to an allocation of any size.
20. Private use of SDR. Allowing private sector holding (and trading) of official SDRs would enhance their reserve asset quality as central banks could use them directly to intervene or extend liquidity to the market, instead of having to go through the Fundâs voluntary market or designation mechanism to exchange their SDR holdings for useable currency, a transaction that can take several days to complete. It could also help spur development of a market in other SDR-denominated assets and contribute to the development of other reserve currencies. Private sector institutions could be interested in holding official SDR based on a calculation that the market may develop further and for the potential benefits of SDR as a source of liquidity. Allowing the private sector to use SDR holdings as collateral to obtain freely useable currencies at times of globalized liquidity squeeze or financial distress could increase the incentives for holding SDRs. This would require consent from key
central banks to provide a market for private participants, or opening the Fundâs voluntary market to them, which may require capping the amounts of SDRs eligible for such transactions. Private holdings of SDRs could thus directly contribute to alleviating stress at
times of crisis and would mimic the global provision of foreign currency swap lines.
III. DEVELOPING NEW RESERVE ASSETS
21. A less constrained route. Official SDR allocations would clearly contribute to the objective of expanding the supply of safe reserve assets. However, given their limitations and the very high degree of political consensus needed to enhance their role, it is worth exploring whether there would be other ways of creating new reserve assets that could be denominated in SDRs. The focus in this section is on steps that could be taken by the Fund or a subset of its membership acting together. These include: i) Fund-issued SDR bonds; and ii) other SDR-denominated reserve-backed assets that could facilitate the diversification of reserve holdings and spur market development for other SDR securities.
A. Fund-issued SDR Assets
22. SDR-denominated bonds...
23. New financial structure.
B. Reserve-backed SDR Assets
25. Substitution account.
26. Alternatives.
IV. MITIGATING EXCHANGE RATE VOLATILITY
A. Pricing, Accounting, and Pegging
28. Foreign trade pricing.
29. Data reporting and accounting.
30. Pegging.
AND FINALLY THE CHINESE CONNECTION
40. The RMB question. The recent review of the SDR valuation concluded that in spite of Chinaâs prominent share of global exports, the RMB should not be included in the SDR basket, as it did not meet the criteria to be determined a freely usable currency. It is an open question however whether this criterion should be retained as part of the SDR valuation method. Recent reforms that allow nonresidents, including central banks, to hold RMB-denominated deposits and the gradual development of RMB derivatives in Hong Kong could contribute, overtime, to resolving some of the technical difficulties in hedging RMB exposure. These could perhaps be supplemented by additional convertibility agreements between the PBC and other SDR designated holders. Such steps might be sufficient to preserve the SDRâs attractiveness with traditional reserve managers, particularly if explicitly part of a broader plan including a credible public commitment to internationalize use of the RMB and to liberalize capital flows.
those of the outside will work with those in the inside to make a full clean ( btw remember Titus).