09/03/09 Baltimore, Maryland
Walking the long, windy road toward the demise of the dollar, we spy another mile marker today: China is officially putting their money where their mouth is.
After clamoring for a reserve alternative all year, the Chinese government agreed to a $50 billion currency-diverse deal with the IMF today. Back in June, the deal seemed imminent. This morning, it finally came to fruition.
In their deal with the IMF — the first of its kind for any nation, ever — China buys $50 billion worth of bonds denominated in Special Drawing Rights, which will represent a basket of global monies. (That basket will be a split between the dollar, euro, pound and yen… not exactly the gems of the global currency batch.)
Still, it’s probably a win for China on several fronts: They get to ditch the dollar (sort of) without making a big geopolitical stink. In fact, since their funds will prop up the IMF’s rescue coffer, China gets to play the global good guy for once — while also purchasing some political influence over the IMF.
Russia and Brazil have each promised to buy $10 billion of these bonds, as well.
Ian Mathias
Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report – Agora Financial’s flagship income investing advisory.
Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland.
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Good article!
Wonder if this is the start of the snow ball effect?
Kyle