Rocky Vega

When discussing reserve currency alternatives to the US dollar, conversation almost inevitably returns to the International Monetary Fund’s “synthetic reserve asset,” the Special Drawing Right (SDR).

However, the SDR basket of currencies is noticeably antiquated in its design, including only the currencies of industrialized nations… namely British Pounds, Euros, Japanese Yen, and US Dollars. This week, foreign exchange manager Overlay Asset Management has announced a currency basket it’s launching in order to offer a more up-to-date “virtual world reserve currency.”

According to the Financial Times:

“[Overlay Asset Management’s] Wealth Preservation Currency Index consists of the currencies of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity. The PPP element ensures a higher weighting to emerging market currencies than is commonplace in other currency baskets, with the Chinese renminbi (accessed through non-deliverable forward contracts) accounting for 16 per cent, Indian rupee 6 per cent and Brazilian real 4 per cent.

“In contrast the International Monetary Fund’s special drawing rights, the nearest approximation to a global currency, consists purely of a basket of developed world currencies. Overlay says the hedging tool has attracted the interest of sovereign wealth funds, particularly from the Middle East and East Asia, pension funds, insurance companies, wealthy individuals and family offices, while a number of central banks are purportedly keen to use it as a benchmark for their forex reserves…

“…Overlay’s rationale is that investment portfolios are often heavily exposed to the dollar, but many investors have doubts as to whether the greenback can retain its value and remain the world’s primary reserve currency.”

The global “currency war” — as many are calling it — continues to heat up, with no obvious resolution in sight. While it wouldn’t be a simple, quick, or painless process to replace the US dollar as reserve currency, it seems inevitable that calls for just such action are bound to increase, especially if currently loose US monetary policy – including quantitative easing in particular — continues unabated.

You can read more details in Financial Times coverage of how a new world currency index has launched.

Best,

Rocky Vega,
The Daily Reckoning

Rocky Vega

Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let?s Go Publications, Harvard Student Agencies, and The Harvard Advocate.

  • bill

    What about gold, precious medals, or a real commodity backing a currency? Too honest, too transparent.

  • Trevor J. Murphy

    Contrary to popular belief, the demand for paper money is not on the wane. With more debit cards comes more banknote needs, thus more banknotes in circulation.
    To learn more about banknotes, visit the Global Paper Security blog at http://www.globalpapersecurity.com

  • Mark Dilley

    The gift of communication is to use words that the average man can understand. Christ himself used this method so that sinners in darkness could understand and maybe see the light.

  • http://www.plushbeds.com/latexmattress.html Pat

    Keep in mind the propecy of the inability to buy or to sell without a mark in the hand or the forehead.

  • John G

    END THE PRIVATE FEDERAL RESERVE BANK & IMF

    A GLOBAL CURRENCY MARKS THE BEGINNING OF THE END

    STAND AND FIGHT THE SATANIC GLOBALIST BANKERS OR DIE HOMELESS ON THE COUNTRY YOUR FOREFATHERS CONQUERED

  • http://www.latexmattress.org Art

    I’m with Ron Paul — abolish the Fed. They are the ones making our system so volatile, and all the central banks are tied together.

  • Brian Michael Flickinger

    No, a hard currency (not a rice paper product) will be issued to all people around the world , yes,(precious metals)will be available,and distributed to the worlds population .

  • Brian Michal Flickinger

    You will not be given the mark of the beast. There has been a change of plans for the prophecies of man .

  • writeheiney

    Why do Central Bankers even need hard currency? Placing the world’s currency into computers and permitting only debit cards would put Elitists in the ultimate position to manipulate the money supply without any pesky inhibitions. Truly, this is where the world’s money supply is today and will increasingly be in the future. SDR’s are an intermediate step in this direction.

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