SDR World Order

by | Oct 1, 2016 | Newsletter | 29 comments

Message From James

James Corbett presents at TEDxGroningen

James Corbett

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vol 6 issue 33 (October 1, 2016)

nif_sdrworldorderSDR World Order

by James Corbett
October 1, 2016

I’m not sure how to break this to you, but it appears the world is ending this weekend. Or at least that’s what you’d believe if you were reading certain corners of the internet.

As you may have already heard, the UN is “taking over the internet” this weekend. But as you’ve also heard if you follow The Corbett Report, that is a complete misrepresentation of what is really happening. Worse, hyperbole about a “UN takeover” of the internet obscures the real solution to ICANN and the centralized DNS system.

But there’s another “end-of-the-world” event taking place this weekend that you might not have picked up on: the SDR.

sdrbasketThat’s right, the IMF is formally adding the Chinese renminbi (aka the yuan) to their “Special Drawing Rights” basket on Saturday, October 1st. The move boosts the yuan to the status of global reserve currency alongside its basketmates, the pound, the euro, the yen and the dollar. At 10.92% it will be the third highest-weighted currency in the basket, behind the euro at 30.93% and the dollar at 41.73%.

For those who missed my previous reporting on the SDR and the significance of the yuan’s inclusion, here’s the primer:

  • The SDR is not a currency, but a potential claim on dollars, yen, euros, pounds, and now yuan.
  • It is issued by the IMF and held (and traded) as a “supplementary reserve asset” by central banks.
  • There are 204 billion SDRs outstanding, equivalent to $285 billion or about 2.5% of total global reserves.

The upshot of the SDR is that it provides liquidity for global transaction settlement in times when dollars and gold are in scarce supply. Inclusion of a currency in the SDR basket means that there is a built-in demand for that currency as central banks tend to match their currency holdings to the basket’s weighting, meaning that central bankers around the world are now (or have already) adjusted their aggregate holdings of yuan to about 10.92% of their portfolio. With $11.6 trillion of reserves globally, that equates to over $1 trillion worth of yuan being held in central bank coffers around the world.

More than that, the move is expected to boost investment in the yuan from both FX reserve managers and global portfolio managers. The FX inflows alone have been estimated at as much as $3 trillion in the coming years, with onshore bond buying accounting for a further $1 trillion of expected foreign investment.

Some outlets are hailing this as the largest transformation of the global monetary order since WWII.

sdrOthers, like Barron’s Chi Lo, are putting a wet blanket on that hyperbole. In an article titled “What Now for China as Renminbi Joins SDR?” Lo argues that much of the re-balancing of global reserve portfolios have already been completed, and would have only amounted to an extra $31 billion of demand for the yuan, a drop in the bucket of global liquidity. And global investors, he says, will not base their investment decisions on China’s SDR status, but on China’s commitment to the structural reforms which have been put on the back burner since the yuan achieved SDR status:

“SDR inclusion of the renminbi is not relevant to the portfolio re-balancing decision (to increase the weighting of renminbi-denominated assets) of international investors. The impact on global portfolio decisions will come from foreign investors’ assessment of China’s fundamental outlook, the opening of China’s capital account and the decision by international index providers, such as MSCI, to include Chinese A-shares in their global indices.”

So who’s right? Is this the dawn of a new monetary order, or a blip of little significance in and of itself? Well, in a weird way perhaps both are right. China’s SDR inclusion is not going to turn the world upside-down overnight. And if it was just the inclusion of one more currency in the global reserve basket (and only 10% of the basket at that), then this wouldn’t be significant all by itself. But while you were sleeping another development came along that gestures to the potentially transformative nature of this SDR makeover.

In August the World Bank announced to relatively little fanfare an historic bond issue: The International Bank for Reconstruction and Development (IRBD), one of the five institutions under the World Bank umbrella, would sell nearly $3 billion worth of SDR-denominated bonds. And the currency of settlement? The Chinese yuan.

SDR-denominated bonds were flirted with decades ago, most recently in 1981, but the market for SDR bonds did not develop and they soon went the way of the dodo. But now, lo and behold, 35 years later they’re making a comeback, right in the heart of the world’s rising economic dragon.

The issue, which went ahead on August 31st, serves a mundane, practical purpose: It allows Chinese investors to dabble in different currency assets without investing abroad. But at the same time it serves a much bigger purpose. In attempting to revive the long-dormant SDR bond market, China is tacitly backing the SDR as a reserve currency unto itself. Not a mere claim that is redeemed in other currencies by central banks in need of liquidity, but a settlement currency in and of itself.

As I explained before, this has been Beijing’s plan since the 2009 crisis: not to have the yuan replace the dollar as the global reserve, but to have the SDR replace the dollar. This allows the Chinese government to avoid having to liberalize the yuan or ease up on its rigid capital controls, but still gives it a seat at the table in a new global monetary order while simultaneously dethroning their best frenemy, the US. It’s win-win-win for China and, more importantly, win-win-win for the globalist oligarchs who want to bring in a New World Order of globally-administered currency.

As The Epoch Times puts it: “This is the first step toward one world currency.”

globalcurrencyAnd guess what? It’s been in the planning for years, openly discussed in the central bankers’ white papers, decision documents and conferences, but conveniently unreported by the media and completely overlooked by the public.

In March 2009, as the world was still reeling from the Global Financial Collapse, Zhou Xiaochuan, the Governor of the People’s Bank of China, published an essay on March 23, 2009 in an essay bluntly titled “Reform the international monetary system.” In it, he argued that the world could no longer afford to be tied to the US dollar and the vagaries of the American financial system. Instead, it needed to be presided over by those trustworthy angels at the IMF:

“Compared with separate management of reserves by individual countries, the centralized management of part of the global reserve by a trustworthy international institution with a reasonable return to encourage participation will be more effective in deterring speculation and stabilizing financial markets. The participating countries can also save some reserve for domestic development and economic growth. With its universal membership, its unique mandate of maintaining monetary and financial stability, and as an international ‘supervisor’ on the macroeconomic policies of its member countries, the IMF, equipped with its expertise, is endowed with a natural advantage to act as the manager of its member countries’ reserves.”

And in case that wasn’t clear enough, Zhou also wrote that: “The SDR has the features and potential to act as a super-sovereign reserve currency.”

The very next year the Bank for International Settlements (yes, that Bank for International Settlements), the European Central Bank and the World Bank jointly organized the Third Public Investors Conference, a chance for 80 central bankers, wealth fund and pension fund managers to hobnob at the BIS’ headquarters in Basel and discuss their world domination schemes. The results of that conference were collected in an edition of “BIS Papers” and published on the BIS website. One of those papers, penned by George Hoguet and Solomon Tadesse of State Street Global Advisors, discussed “The role of SDR-denominated securities in official and private portfolios” and predictably pimped the revival of SDR bonds that we are currently living through:

“An investor can synthetically replicate the weights of an SDR-denominated bond, but a security denominated in SDRs is self-rebalancing and is likely to minimize rebalancing costs. Additional research, particularly on the coordination problem (which limits liquidity) and operational issues, including settlement, can facilitate the development of an SDR-denominated bond market. Williamson (2009a) suggests that greater private use of the SDR could possibly facilitate greater official use, including the pegging of currencies to the SDR rather than to a basket of currencies or to some bilateral exchange rate.”

In other words, SDR bonds create the market for SDRs generally and legitimate their use as a settlement currency in their own right.

yuanphnoeNow, six years later, here we are with the World Bank helping China issue SDR-denominated bonds. This is the real reason that this bond issue is happening at all. As The Epoch Times points out: “For the IBRD, there is no advantage because it is borrowing in strong currencies and getting paid in a relatively weak one.”

No, this is not about some wonderful new way for the World Bank to cheaply finance its bond issues; it is entirely about legitimizing the role of the SDR on the world stage as a potential world currency.

It remains to be seen whether this strategy will be successful. The first bond issue was a success, with a bid to cover ratio of 2.5 and 50 institutional investors—from central banks to domestic banks, brokerages and insurance companies—bidding on the instruments. But ZeroHedge quotes a fixed-income fund manager in Hong Kong who was not so impressed by the auction: “We are not interested in SDR bonds and we can’t see why Chinese investors should want these bonds since they can easily buy much higher yielding bonds in China.”

Whether SDR bonds will take off depends completely on whether the central bankers can convince the financial world of the benefits of scuttling the dollar reserve system. That will take some concerted effort, which is why we should expect to see an increase in stories raising awareness about SDRs and their potential utility in the coming years.

In that sense, the spate of stories this weekend about the yuan’s SDR inclusion may not be so much the end of the world as the first wave of propaganda getting people ready for the end of the world.

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    • Regardless of whether it’s overt national tyranny (e.g. via national institutions like the Pentagon, US State Department, etc) or more subtle globalist tyranny (e.g. via international institutions like the UN, IMF, WB, BIS, etc)… it’s still tyranny. The same globalists and bankers are pulling the strings at the national and international levels in order to bring about the “New World Order” that they’re quite open about producing (particularly thru “order out of chaos”).

      • I hate terms like “globalist”, whether the world is flat or a globe, economies all over the world are intertwined (ie trade), and this has been going on for millennia. So “globalist” aren’t new, they’ve been around since basically the worlds first empire, and it’s not as if they are scheming in dark corners either, like James pointed out they are pretty open about their plans.

        The fact is, world empires have all come and gone, and we are currently living in the era of the US empire, and it would seem, the Europeans, the Chinese, the Japanese and the Brits are all looking to create an alternative to the US Dollar…

        …and to be honest, I’d rather have multiple nations in control of a world currency rather than an expansionist American Empire constantly at war with oil rich nations, usurping developing countries, and then bragging about how “Exceptional” they are.

        This way, no “one” nation or “man” can dictate to others, instead they are forced to look for compromising solutions, solutions that will seek to benefit all nations.

        • What’s important to note is that the “globalists” individuals and institutions (e.g. Rockefeller, Rothschild, Soros, Kissinger, WB, IMF, BIS, CFR, TC, UN, etc) that I’m referring to don’t have any allegiance to any national empire, but are intent on bringing about a global (non national) empire that fulfills their desired ends… It doesn’t take much research to find out what their desired ends for a global “New World Order” are.

          Thus, just because it isn’t supporting American (or even Western) hegemony, doesn’t mean it isn’t ultimately furthering their own agenda of a global governance fashioned in the image of their “New World Order”.

          And I would argue that the global financial system almost wholly constructed and orchestrated by institutions like the IMF, WB, and BIS, is clearly in pursuit of global hegemony and governance. The financial system is top to bottom a form of subtle slavery that has been created and perpetuated by these “globalist” interests in order to further their agenda for the world.

          • — “Thus, just because it isn’t supporting American hegemony, doesn’t mean it isn’t ultimately furthering their own agenda of a global governance fashioned in the image of their “New World Order”.” —

            The Federal Reserve doesn’t “govern” anything. Congress and the President govern, the Feds main objective is monetary policy.

            It’s wrong to refer to it as “global governance”, since its not in charge of governance per se, they’re in charge of monetary policy. How the money is collected and spent, that is up to the law makers.

            Now, I know all about The Creature from Jekyll Island and how the Fed came into existence, and since we’ve had 100 years to reflect on its creation, can we really say Americans are worst off today financially than they were 100 years ago? I don’t think so.

            Sure, one could point to the financial crisis of 2008, however the system worked great for years, it wasn’t until during the Clinton administration that lawmakers deregulated the Fed when they got rid of Glass–Steagall that the whole thing started falling apart.

            One only needs to look at the cotton picking South and it economic system of slavery in 1863 and compare it the free industrialized North, to figure out that the US had no choice but to create an institution such as the Fed in 1913, if they hadn’t they risked another civil war down the road.

            It’s no coincidence that the US was carved up in 12 regions with each region having their own central bank. This was done to avoid a particular region falling behind economically.

            It’s the unbalanced spread of wealth that foments crime, civil unrest and wars. So, if the goal is to create a multi national currency, managed by a conglomerate Federal Reserve Bank, then I’m all for it.

            What other choices do we have? A US Empire hell bent on endless wars to prop up its petro-dollar, or a Global Federal Reserve Bank to help bring about equilibrium to all nations on earth?

            • “Either you’re with us or you’re with the terrorists.”

              Is it possible there is a third option….?

              • If so tell me, until then, I’m with a Global Federal Reserve Bank Currency! BTW, the peeps that did 9/11 are against a Global Federal Reserve Bank Currency, say hello Trump/Nethanyhu, get it?

                You starting to get it Clare?

              • Froggy

                you are again trolling around
                what a stinking job

              • lol! mik, you just took the thoughts I’ve been having about Senor Froggy right out of my head ??

              • Well now, must have struck a nerve somewhere calling me names and belittling me for having an opposing point of view.

                I will admit, I can come off as arrogant sometimes and for that I apologies to m.clare.

                In regards to Nethanyhu being against a Global Federal Reserve Bank Currency, well to be honest I don’t know for sure, however after listening to Trump speeches I do know he’s very much a supporter of continued US empirical hegemony.

              • @mik, potentially Pentagon payroll?

              • Froggy, stop it. I’m pissed.
                This polite place is protecting you against my pejorative verbal torrent that would man-handle you and pretty much of your surrounding.
                Every asshole has its own gaseous opinion and people don’t get annoyed until it gets too vocal.

                It is not about your opinion, it’s about your behavior on this post and most of the others too and that is a behavior of a troll. I’m watching you for quite a while and we already met once.
                I believe most of the people here already found out who you are.

              • Your keyboard threats won’t silence me miky.

                My “behavior” on this post? What the hell does that even mean?

              • lol! This character’s gotta be on the Pentagon payroll

        • I guess my issue with this is WHO will be the ones controlling SDR if it is to be considered and used as an alternative form of reserve currency.

    • I’m sorry but your chronology and info is well wide of the mark.

      The US became an empire when it accepted the invitation to rejoin the British empire in 1897-98 and illegally seize Spanish colonies in Latin America and the Philippines. The deal included uncontested permission to build the Panama canal (which the British had hitherto opposed) and to expand into the Pacific ; the seizure of the Hawaiian islands soon followed.

      Much of this was achieved during the 1898 Spanish War, complete with the atrocities and international criminality normal for the Brits in defiance of the fairly civilized rights and obligations ordained by the Concert of Europe (a 19th century form of UN which actually worked quite well, apart from Britain).
      It also coincides with the first US govt. inside job murdering its own citizens — the sinking of the Maine in Havana harbor. Granted that the first clear such inside job was a lot earlier in Britain ; namely the Guy Fawkes gunpowder plot engineered against Catholics by Robert Cecil (first earl Salisbury, viscount Cranborne and super minister of James I), this is still as early as it gets in the US and typical of imperial oligarchy as opposed to Republican form of government.

      I’d also doubt that SDRs, Bretton Woods or any other similar arrangements of the interntl. financier oligarchy are good for the world or for anyone in it apart from their own membership. All of their monetarist and financial arrangements at both national and international levels are designed to absorb/steal the great bulk of the wealth generated by industrialization. The initial basis of anything financially good for the world as a whole would be to do away with the money-as-debt financial system, to restore debt-free govt money creation and to abolish the entire privately owned banking system. Or at very least to require banks to issue loans from their existing assets and prohibit them from money creation privileges under the fractional reserve regime ; which amounts to the greatest privileges in all history, entirely incompatible with democracy or republicanism.

      And that’s just an initial basis. Plenty of very simple financial regulations would do a very job of distributing the vast wealth generated by industrial economies on a much more equitable basis, much better aligned with Republican sentiments.

      Just as one example, since income tax began as a means for governments to pay back the interest on the loans created for them by private banking cartels, once that system is removed and governments create their own money once again (as throughout all recorded history until the Bank of England arose) income tax can and should be abolished.

      Another would be for each private citizen to have the right to create enough money for their everyday needs, which could be capped at a reasonable level. Supervisory officials could be appointed to remove excess money from the economy if too much were created (i.e. cancel it after arrival in government coffers). All such things very simple and easily regulated in a digital monetary system when banks are really no longer necessary at all. The primary function of the banking business of protecting physical movable assets no longer exists, or has shrunk to negligible dimensions owing to the digitization of money.

      But the current hyper privileged oligarchy of psychopaths needs to be broken and dispersed before any really beneficial monetary reforms can be enacted on a meaningful scale.

      The conditions for meaningful Republican or Democratic forms of government have arisen in the Donbas Republics since their act of separation from the Kiev gangster regime. But they are still too small scale to have much affect in real terms, unless the ideas and practical success they have demonstrated in microcosm take hold in neighbouring Russia. In fact Russia and not the USA is and must be the centre of focus for authentic potential Republicanism. And its for this very reason that Russia is so hated today by the western financial oligarchy and all the sleazy pseudo-democracies that represent it and do its bidding.

      The US was a Republic and had its chance, but it blew it and will never resume its foundational traditions. Whereas Russia was ever an oligarchy or tyranny but is now an aspiring free state with the potential to lead the world in political and monetary civilization.

      • So many errors, so little time.

        Allow me to address only one of them.

        Consider the near-future that you suggest, where the U. S. Treasury creates all our money.

        A small boy knocks on the door of the White House. The next President answers. Small boy offers to mow the lawn for a week of meals. Mr/s Pres agrees.

        Two days later, the job is done. The boy shows up at the door and Mr/s Pres goes downstairs into the basement, runs off a stack of brand-new bills, and gives the boy some of them. The young man is not happy. He mowed the lawn for food, not pieces of paper.

        “Don’t worry,” says the Pres. “Just take them to any Federal facility which has a cafeteria and they will exchange them for food”. Not really convinced, but having little alternative, the boy leaves with a hungry stomach and a fist full of paper.

        Do you see what just happened? A debt was created. The Federal Government now owes this young man a week of meals. But, unlike more conventional debt, because the Pres keeps printing money, the amount of that money money needed to provide those meals will increase, so the ‘price’ will also go up. Meaning the young boy, the creditor, must pay NEGATIVE interest (inflation) on the debt he holds. Every year, he will get fewer meals for the pieces of paper he holds in his hand.

        And the government just got richer by the labor needed to mow the Pres’s lawn.

        So please, cut out the BS about government-created money being ‘debt free’. Like all printed money, it is debt and it’s creation results in the concentration of wealth in fewer and fewer hands.

        Sorry I don’t have the time to correct the rest of the errors in your post.

    • I’ve already gone down the proverbial rabbit hole and all that, I’m afraid it is mostly you here at the CorbettReport that aren’t getting the bigger picture.

      We’ve all seen Trump in Scotland on the day of the Brexit vote (surely not a coincidence) and he openly said it was a “good thing”, and a few weeks later Farage was in Tennessee supporting Trump.

      Now, it is also no coincidence that Brexit is happening just as the Chinese renminbi becomes part of SDR’s basket of currencies, and since we all know that the US empire is inevitably coming to an end, we know with the addition of the renminbi that the US dollar will depreciate even more accelerating the end of US hegemony.

      So Tell me, how does removing oneself from the largest trading bloc in the world, further the cause of the “New World Order”?

      If it does further their cause, then please explain to me how? And if so, then shouldn’t people be voting for Hillary instead of Trump?

      • More like common sense really, pretty easy to de·ci·pher.

    • I believe we are splitting hairs here, so let me put it this way. I believe the Republic died a somewhat slow incremental death and thus began the slow incremental rise of an empire.

      One could say the slow death began once America expanded beyond the original 13 colonies, or in 1863 during the American civil war, or in 1913 when the Federal Reserve Bank was created, or in 1933 with Executive Order 6102 when President Franklin D. Roosevelt confiscated gold from Americans.

      However, I’ll argue that, what really made America a “Global” Empire was when President Nixon stopped convertibility into gold in 1971 for any nation on earth that held US dollars, this is for me, the day America became an Empire. This act duplicated what Roosevelt implemented for Americans in 1933 but on a global scale, and this of course is tied directly to Bretton Woods.

  1. It’s just after midnight here in Japan, now technically Monday October 3rd. I’m looking into some server issues and have had reports that some subscribers are having difficulty logging in to the site right now. If you are having these difficulties, please contact me via the contact form (or email me) to let me know. It would be good to get a sense of how widespread the problem is.

    • I experienced the login problem here in Calgary a couple hours ago.

      Regarding this important SDR story:

      I’ve tried to spread the word to the three people who will condescend to feign an attempt at listening to me. Alas, they are all caught up speculating on which of the two plastic spokesmodel idiots will flap their face holes on TV for the next 4 years, reading speaches prepared by somebody else as if they were their own thoughts. They’re intently focused upon capturing imaginary Japanese mythical fairy creatures on their cerebral prosthetic propaganda dispensers or fainting like school girls at the site of the Royals who are presently blowing kisses at their adoring fan base in Canada. Afterwards, like crack addicts, they will faithfully return to their precious FaceBook postings to count how many “likes” they’ve earned in the last 20 minutes. (Thanks, BTW James, for not subjecting us to peer-pressure-shaming “likes and dislikes” dangling like carrots over jockeyed donkeys)

      I’d like to stick around and discuss the implications of this SDR Whatzit but Kim Kardashian has just introduced a new line of Beach Riot bikini bottoms.

  2. So what does one do to prepare? Hold U.S. dollars? Buy gold? Own stocks? Farm land? Real estate?

    • Sounds like you have something to lose, John.

      I think the trick is to always have something of value to contribute. Building fences, repairing refrigerators, growing tomatos, fixing computers, walking dogs, raking leaves, hosting open source websites…..

      We grow old and our minds and bodies wear out. Where is the safest place to squirrel a few nuts away and what exactly will those metaphorical nuts be?

      Diversify – don’t put all your eggs in one basket. Have some real estate, have some precious metal, have some stocks. When this thing goes off the rails, and it will, it would be better if you had options. Chances are good that everything will be in the toilet. Prepare by having a job that pays the bills during this transitional period of time if you can be so lucky.

      Look at what happened to the price of Silver, Gold, Platinum & Palladium in 2008. Precious metals prices crashed with the stock market.

      Mr. Burns is flapping his gums that he and his drinking buddies are all buying Gold…. can’t help but wonder if he wants us all to buy Gold….

      Diversify. Don’t panic. Don’t get greedy. Provide something useful to your community.

  3. “They who makes the rules”

    Thanks for the info on SDR and its implications.
    I am gonna have to spend some time learning about all this.

  4. When? What could be a trigger?

    Very hard questions, because it is not our Game. It’s the their Game, of leeches at the top. And they can tweak it, introduce new rules, new variables, new mirrors and more smoke.
    Just look at QE, today’s new normal, something unimaginable twenty years ago. We have negative interest rates, something beyond blasphemy in capitalism.

  5. Excerpt from ‘Deficits are our Saving’:

    “But if we just take a deep breath and think the situation through we would see that the ticking debt clock is really just a measure of the portion of non-government wealth embodied in public debt. We would then learn that budget deficits are just the mirror image of non-government savings. Saving is usually considered to be something we should aim for. Increased wealth is also something we usually aspire to.”

    In every sentence you just twist reality a bit. Shell game also helps.
    With enough verbal gymnastics and obfuscation someone might prove that a dog is insect.

    • It’s fascinating… I think obfuscation is one of the most powerful tools of the elite that the intelligentsia buy into so frequently (typically to retain consensus, comfort and/or pride). Once a given narrative or interpretation of the data/event/etc has taken root it often is then considered dogma. Unfortunately, this is not solely in economics, but in almost every aspect of human society and knowledge in my opinion…

      After the rise of postmodernism in intellectual circles, you would think there would be a stronger push to question authorities (of every kind) and narratives… But alas, if you control the past (both how its knowledge is understood and how it’s narration is performed in the public sphere) you control the future.

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