IMF Signs US$50 Billion Note Purchase Agreement with China - IMF Injecting $283 Billion in SDRs

[Slimprofits]

(A) The note purchase agreement is the first in the history of the Fund, and follows the endorsement by the Executive Board on July 1, 2009 of the framework for issuing notes to the official sector. The Chinese authorities had expressed their intention to invest up to US$50 billion in IMF notes in June (see Press Releases No. 09/204 and No. 09/248).

cont.

http://www.imf.org/external/np/sec/pr/2009/pr09293.htm


*****

(B) The allocation, equivalent to $250 billion, was made on August 28 and will be followed by an additional, albeit much smaller, allocation of $33 billion on September 9. With the two allocations totaling roughly $283 billion, the outstanding stock of SDRs would increase nearly ten-fold to total about $316 billion.

There are no notes or coins denominated in SDRs, nonetheless the SDR does play a role as an interest-bearing international reserve asset. The allocation of SDRs by the IMF boosts member countries’ reserves because SDRs can be turned into usable currencies. Once the SDRs have been added to a member country’s official reserves, the country can voluntarily exchange its SDRs for hard currencies, such as the U.S. dollar, euro, yen, or pound sterling, through voluntary trading arrangements with other IMF member countries.

Some countries have already volunteered to set up trading arrangements that will facilitate the buying and selling of SDRs.

cont.

http://www.imf.org/external/pubs/ft/...POL082809A.htm

[D-Mack]

Re: IMF Signs US$50 Billion Note Purchase Agreement with China - IMF Injecting $283 Billion in SDRs

China invests 50 billion and gets 10 back?

Just ahead of the G20 finance ministers' meeting in London this weekend, the IMF last week transferred an allocation to its 186 country members of $250 billion in special drawing rights (SDRs), the IMF's internal unit of account.

...

The SDR, used as the unit of payment for IMF loans, is made up of a basket of euro, yen, sterling and dollars.

The size of each country's SDR allocation is linked to the size of its "quota" with the multi-lateral lender, based on the country's relative size in the world economy.

This means the SDR allocation varies greatly even among emerging markets, from around $11 million for Dominica to around $10.5 billion for China.

For a country like China, which has more than $2 trillion in foreign exchange reserves, the allocation is tiny.

....

http://www.reuters.com/article/GCA-E...090903?sp=true

[jk]

Re: IMF Signs US$50 Billion Note Purchase Agreement with China - IMF Injecting $283 Billion in SDRs

i think these are 2 separate transactions. the $50billion note allows the chinese to "invest" dollars and get back sdr's = a currency basket. it is thus another small step away from the dollar.

[Slimprofits]

Re: IMF Signs US$50 Billion Note Purchase Agreement with China - IMF Injecting $283 Billion in SDRs

yes, sorry for the confusion, I combined two articles into one thread.

[Slimprofits]

Re: IMF Signs US$50 Billion Note Purchase Agreement with China - IMF Injecting $283 Billion in SDRs

http://www.atimes.com/atimes/China_B.../KJ01Cb01.html

Bankers and economists in Beijing are saying that the Washington Consensus is dead.

[..]

Chinese economists feel this crisis gives China room for further financial reform. Within this context, China's yuan will rise and become the international currency. At least that is what many in Beijing think; others are skeptical and feel the dollar can't be replaced in the short-term as the global reserve currency. They warn that promoting such an idea is detrimental to China's relations with the US. Nonetheless, China's economic leaders agree that the SDR should one day replace the dollar as global reserve currency, even though the debate over when this occurs continues.

China has given the developing world a new response profile. Rather than argue with the IMF policy, make the IMF your debtor. The IMF has little choice but to listen. At any rate, the United States and Europe cannot afford to purchase the IMF's new SDR-issued bonds. China can. Bretton Woods established the IMF as the world's bank of reserve. It looks like China is positioning to become the bank of reserve to the IMF.

[Slimprofits]

Re: IMF Signs US$50 Billion Note Purchase Agreement with China - IMF Injecting $283 Billion in SDRs

Beijing Review #39

Crisis Focus: Renminbi Possibilities

The International Monetary Fund (IMF) announced on September 2 that the People's Bank of China will purchase up to 32 billion Special Drawing Rights (SDRs), or around $50 billion of the IMF notes, as part of the international effort to ensure the adequacy of the financial resources available to the fund. Zhang Bin, a researcher at the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, shared his insights on how the central bank's decision might influence the Chinese currency with Beijing Review. Edited excerpts follow:

The purchase, first of all, will alleviate the international payment problems of developing countries and emerging economies.

Since the IMF has not revealed how the money will be spent, it is difficult to judge the influence these actions will have on China. Several possibilities exist, each of which will result in a different impact.

If the IMF uses the renminbi it acquired from the Chinese central bank to buy dollar assets held by China, Chinese foreign exchange reserves will be more diversified as they include SDR-denominated assets. Considering the SDR is a basket of currencies, holding SDR assets will help China alleviate the loss incurred due to the dollar depreciating against other currencies.

By purchasing dollar assets or foreign currency-denominated assets from other financial institutions, (we suppose the IMF will most likely choose to buy U.S. Treasury securities), the IMF transaction will help keep U.S. Treasury securities and U.S. interest rates at a relatively low level for the time being. This will in turn maintain the value of dollar assets currently held by China and further boost the economic recovery worldwide. However, this decision, in the long run, will dampen the real dollar value because lower U.S. interest rates will intensify inflationary pressures in the future. In other words, it will eventually hurt the value of China's dollar assets.

Exchanging the acquired renminbi into U.S. dollars and making dollar loans to financially troubled countries, another possible action by the IMF, would also increase demand for the U.S. dollar. The impact on the Chinese foreign exchange reserves could result in a boon in the short term, but a bomb in the long run.

If the IMF does not exchange the renminbi it acquired for U.S. dollars, but directly issues renminbi loans to financial institutions or countries, the impact will depend on how the recipients spend the money. If the recipients purchase dollar assets to strike a balance on international payments, the impact on Chinese dollar assets will be similar to the abovementioned second and the third possibilities.

If those economies keep the renminbi they receive from the IMF as official reserve assets, and in the meantime reduce their dollar holdings, it will push ahead the internationalization of Chinese currency as an international reserve currency. Meanwhile, it will depress the international demand for the U.S. dollar, which will weigh down the value of dollar. Even though it will deal a blow to the value of Chinese dollar reserves, it is conducive to the renminbi's internationalization effort in the long run.

[thunderdownunder]

Re: IMF Signs US$50 Billion Note Purchase Agreement with China - IMF Injecting $283 Billion in SDRs

Now let me get this straight, The unsinkable Titanic is sinking and they want to transfer passengers over to the new improved version made of paper mache'
SDR = Stupid Dumb Retards.
I'm sure they are guaranteed against the assets of Andromeda.
If we all stopped transferring funds you will Kill the beasts blood flow.
Buy at .25% and I sell for .50% I have a markup of x2
Buy at .25% and sell for 5% is ?????
Nah this birds not plucked yet.
your talking peanuts
Carry on = nothing to be learnt here