SDR
by jricciardi3 | October 15, 2014 10:52 am
Travis,
Is there any way to invest in SDR’s before its takeover of the dollar as the reserve currency? Jim Rickards[1] and Addison Wiggins[2] pitching a way to invest. Thanks
Endnotes:
- Jim Rickards: https://www.stockgumshoe.com/tag/jim-rickards/
- Addison Wiggins: https://www.stockgumshoe.com/tag/addison-wiggins/
Source URL: https://www.stockgumshoe.com/2014/10/microblog-sdr/
The IMF SDR (Special Drawing Right) is a bogeyman used by all folks who fear globalization and think the US dollar is going to disappear as the world’s reserve currency. That may happen, it may not, I don’t know.
The SDR is also real, however — it’s the currency used by the IMF and it was used to help bolster the reserves of some countries who were floundering after the financial crisis — under the Bretton Woods system of fixed exchange rates after WWII it was basically the same as a dollar or an ounce of gold, since all exchanges were fixed, but once currencies started to trade independently and fluctuate it started to fluctuate, too. It’s not something you can “buy” or invest in, really, and it doesn’t go up or down of its own accord, but its value for exchange among member countries is set by a basket of major currencies and it’s looked at every five years to see if the percentages need to be tweaked. Right now, it’s based on an equation of (very) roughly 40-40-10-10 US$, Euro, Yen, and Pound. So you can’t buy one as an individual, and I can’t think of any reason why you’d really want to, but an SDR is worth about $1.50 right now.
SDRs are explained on the IMF page here if you’re curious: http://www.imf.org/external/np/exr/facts/sdr.HTM
What a lame answer. That was not the question..
OK, here’s the specific answer: The SDR is composed of four currencies, in set ratios (soon to be five, when the Chinese Yuan joins the SDR in October). If you want to mimic the SDR with some particular amount of money, just put 37% in Euros, 9% in Yen, 11% in Pounds and 42% in US Dollars. There are futures accounts available for the SDR through some providers, it appears, but they’re trendy and news-driven so they’re probably far too expensive and friction-laden to be useful for a typical individual investor.
The SDR is not something of its own accord that will go up and down irrespective of the currencies that make up the SDR, it’s really just a way to think of cash on a global, multi-currency basis instead of using a single currency like the US dollar — though it’s still dominated by the dollar and euro, and will remain so even after the Yuan joins (China’s currency will offset the Yen and Pound more than anything else). If a bond is denominated in SDRs, that really just means that it could theoretically be less volatile than a single currency. So far, owning dollars has been better than owning SDRs, of course, because the dollar has been very strong against most of those currencies most of the time — at least since 2010, when the currency ratios were reset most recently. An SDR was $1.50 back then, and is about $1.42 now.
The SDR is not going to replace national currencies, and it won’t be any different in value than those currencies are in aggregate, but those ratios represent some sort of currency diversification across major economies if you’re interested in trying to hold a diversified portfolio of major foreign currencies.