Gold, the SDR and BRICS
Last Monday there was a meeting in Washington hosted by the Official Monetary and Financial Institutions Forum (OMFIF) to discuss the future relationship, if any, of gold with the Special Drawing Rights1 (SDR).
Also on the agenda was the inclusion of the Chinese renminbi, which seems certain to be included in the SDR basket in this year’s revision, assuming that the United States doesn’t try to block it.
This is not the first time the subject has come up. OMFIF’s chairman, Lord Desai wrote a paper about it after the last Washington meeting on gold and the SDR exactly four years ago. The inclusion of the renminbi in the SDR was rejected in 2010 because of inadequate liquidity and is due to be reconsidered this year.
Desai pointed out in his paper that there are difficulties when it comes to including gold, because (and I think this is what he was trying to say) none of the SDR’s paper constituents are convertible into gold, but gold’s inclusion in the SDR would make them convertible through the back door. However, Desai seemed keen to re-examine the case for gold.
It should be pointed out that if gold is included in SDRs the arrangement cannot be long-lasting so long as the major central banks insist on printing money as an economic cure-all. However, China’s position with respect to gold and her own currency could be a different matter.
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