In past posts I have shown how SDR allocations (creating money out of thin air) might have an influence on the increasing price of gold.
So what changes at the IMF could lead to more SDR Allocations?
US Effective Veto Could Change
Currently the IMF has a rule that 85% of the votes are required to pass a resolution. Since the US quota is somewhere between 16 - 17% they currently have an effective veto. There have been suggestions floated that this voting rule should change to something like 70%. The real issue is around how the financial world would interpret such a change. One view might be that it would make it easier to create SDR allocations!
SDR Basket of Currencies Could Change
Let’s face it it 1 SDR used to be equal to 1 US dollar which was equal to 1/35 ounce of gold. In 1969 the depreciation (in US dollar terms) started first with the US dollar against gold and then into a basket of 16 currencies, that changed to 5 currencies and today we have 4 currencies. Every time there was a basket change eventually the US dollar equivalent value has depreciated and gold has gone up in US dollar terms !! When is China going to be added to the basket?
General IMF Quota Rules Could Change
Currently an IMF quota system exists which is used for SDR reserve requirements, IMF voting and SDR allocations. IMF quotas can be changed. This impacts each nations IMF SDR reserve requirements and the IMF process of SDR allocation.
However IMF quota changes do not impact the total number of SDRs created via IMF allocations. They just change the distribution of who gets how many of the new SDR allocation.
SDR Allocation Frequency Could Change
SDR allocations were made yearly from 1972-75 and from 1979-81. Then they stopped and in 2009 there were two one time huge allocations. There has always been talk that the IMF wants to start up yearly SDR allocations again to micro manage the global money supply. Others suggest doing SDR allocations on a regular 5 year schedule and then others prefer allocation to be driven by major economic events. So there remains a great deal of uncertainty as to the future frequency of SDR allocations!
Gold prices to remain sticky up ?