EDITOR NOTE: The mainstream investing crowd seems to think that the only legitimate threat to the US dollar stems from internal factors--namely, the Fed’s money printing and the government’s rampant spending. That would be true if the dollar was the only (or strongest) game in town, so to speak. But apparently, it’s not. The covid pandemic has given the International Monetary Fund a timely opportunity to crank up its own printing presses to flood the global economy and vulnerable countries with its own reserve currency: the Special Drawing Right, or SDR. Promoted by its mandate to boost emerging economies recovering from the pandemic, the IMF plans to release $650 billion in SDR issuance. A move that would have been blocked by President Trump and Secretary Mnuchin is welcomed by President Biden and Secretary Yellen. The SDR may finally be emerging as a legitimate alternative to the dollar as the world’s reserve currency. It’s only a matter of time before the dollar meets the same fate that the British pound sterling saw in the first half of the 20th century. And when that happens, the drop in value in the dollar-based assets you hold may soon reflect that of a beaten or dying currency.
The economic damage from coronavirus has fallen hardest on developing countries, where healthcare costs and historic falls in output have worsened already-heavy debt burdens. Last week the IMF and UN both warned that the world should be braced for an emerging market debt crisis as the global economy emerges from the pandemic and interest rates rise, drawing capital away from vulnerable countries. The G20 and the IMF international monetary and financial committee are expected to sign off on a plan to issue $650bn of new IMF special drawing rights (SDRs) — a financial instrument that would boost emerging economies’ balance sheets.
Originally posted on Yahoo! Finance