Typography

Last week, we finally got some information about what Libra's currency basket would look like. A Libra currency basket will reportedly include... -no Chinese yuan -50% dollar -18% euro -14% yen -11% pound -7% Singapore dollar https://t.co/YNbRY9Q02x Libra could have automated the decision by adopting an established unit of account, say the IMF's SDR... — John Paul Koning (@jp_koning) September 20, 2019 If you haven't heard, Libra is a proposed global blockchain-based payments network. It is being spearheaded by Facebook along with a coalition of other companies including Uber, MasterCard, PayPal, and Visa. The hook is that rather than going the conventional route and expressing monetary values using existing units-of-account like the dollar, yen, pound, or euro, the Libra network will rely on its own bespoke Libra unit-of-account as its "base language." Libra originally revealed in its whitepaper that the Libra unit would be defined as a basket, or cocktail, of ...

Facebook recently announced a new cryptocurrency, Libra. I had earlier speculated about what a Facebook cryptocurrency might look like here for Breakermag. I think this is great news. MasterCard, Visa, and the various national banking systems (many of which are oligopolies) need more competition. With a big player like Facebook entering the market, prices should fall and service improve, making consumers better off. The most interesting thing to me about Facebook's move into payments is that rather than indexing Libras to an existing unit of account, the system will be based on an entirely new unit of account. When you owe your friend 5 Libras, or ≋5, that will be different from owing her $5 or ¥5 or £5.  Here is what the white paper has to say: "As the value of Libra is effectively linked to a basket of fiat currencies, from the point of view of any specific currency, there will be fluctuations in the value of Libra." So Libra will not just be a new way to pay, but al...

Donald Trump doesn't like the strong dollar, but is there anything he can do about it? Last month Donald Trump told the Wall Street Journal that American companies can’t compete "because our currency is too strong. And it’s killing us...” Trump's dislike of the strong dollar doesn't surprise me. I've known a few mercantilists over the years, and all of them have always been keen on trashing their home currency, the idea being that with a weaker currency domestic manufacturers will enjoy a shot to the arm. This in turn stems from the antiquated (and very wrong) idea that manufacturing is somehow the most important activity an economy can be engaged in. Tweeting about one's desire for a weak dollar is one thing, but are there any actual levers Trump can pull on to affect the exchange rate? U.S. exchange rate interventions are rare these days, with only two occurring in the last twenty years. In September 2000 U.S. monetary authorities intervened with other centr...

The FT makes a hullabaloo out of Greece using special drawing rights (SDR) to pay the IMF earlier this week, referring to the step as "unusual." Zero Hedge predictably  grabs the baton and runs as far as it can go with the story. It's a good opportunity to revisit the SDR, a topic I last wrote about back in 2013. The FT claims that the payment of SDRs to the IMF is "the equivalent of taking out a low-interest loan from the fund to pay off another." Here the FT has committed cardinal error #1 when it comes to understanding how SDRs work—SDRs are not lent out by the IMF. I like to think of the SDR mechanism as comprised of 188 lines of credit issued to each of the IMF's 188 members. These lines of credit are denominated in SDR and apportioned according to each countries' relative economic size. Any line of credit needs a creditor. In the case of SDRs, who fills this role? Why, the 188 members of the IMF do. The SDR system is a mutual credit system, or...

IMF board room I like to think of the International Monetary Fund's special drawing rights (SDR) program as the world's largest Local Exchange Trading System , or LETS. A truly unique part of the monetary landscape, what follows is a short visual essay on SDRs. What is an SDR? An SDR has two aspects. First, an SDR is a unit of account, or, put differently, a measure of value. As a unit-of-account, the SDR is defined by the IMF in terms of a reference good, or a medium of account. When the SDR was first introduced in 1969, an SDR was defined as 0.888671 an ounce of gold, so the yellow metal was the SDR's first medium of account. The IMF later redefined the SDR as a certain quantity of central bank currencies. As of 2012, an SDR is comprised of a basket of 0.423 euros, 12.1 yen, 0.111 pounds, and 0.66 US dollars. Thus the modern day SDR is defined in terms of multiple media of account. The Suez Canal Authorities currently uses the SDR to calculate the Suez Canal Tariff, whi...

A few thoughts on the IMF and SDRs over at the Money View . The IMF and the SDR program are difficult to de-consolidate: As far as I know, the IMF doesn't run the SDR program on its own balance sheet, it just administers the SDR program. Using your example, the EU and the US issue promises to currency which are held in some mutual account managed by the IMF, and that account in turn issues SDRs back to the EU and US. So in effect, the IMF doesn't swap its own promises with the EU and the US. Rather, the US and EU are swapping promises with each other with the IMF as facilitator. That being said, The last time I checked, the IMF was the largest owner of SDRs, all held on its own account.  Here is the current distribution of SDRs across nations and institutions.