The Bretton Woods conference of 1944 set the global financial system that still prevails today. The period 1969-1971 can be regarded as the First Reset, which involved the creation of Special Drawing Rights (SDR, ticker:XDR), the devaluation of the dollar and the end of the gold standard.
For years, commentators (myself included) have discussed the next global monetary realignment, which is sometimes called The Big Reset or The Great Reset.
Now, it looks like the long-expected Great Reset is finally here.
Details vary depending on the source, but the basic idea is that the current global monetary system centered around the dollar is inherently unstable and needs to be reformed.
Part of the problem is due to a process called Triffin’s Dilemma, named after economist Robert Triffin. Triffin said that the issuer of a dominant reserve currency had to run trade deficits so that the rest of the world could have enough of the currency to buy goods from the issuer and expand world trade.
In 1969, the International Monetary Fund (IMF) created the SDR, possibly to serve as a source of liquidity and alternative to the dollar.
In 1971, the dollar did devalue relative to gold and other major currencies. SDRs were issued by the IMF from 1970 to 1981. None were issued after 1981 until 2009 during the global financial crisis.
Since 2009, the IMF has proceeded in slow steps to create a platform for massive new issuances of SDRs and the creation of a deep liquid pool of SDR-denominated assets.
On January 7, 2011, the IMF issued a master plan for replacing the dollar with SDRs.
The IMF study recommended that the SDR bond market replicate the infrastructure of the U.S. Treasury market, with hedging, financing, settlement and clearance mechanisms substantially similar to those used to support trading in Treasury securities today.
The SDR can be issued in abundance to IMF members and used in the future for a select list of the most important transactions in the world, including balance-of-payments settlements, oil pricing and the financial accounts of the world’s largest corporations, such as Exxon Mobil, Toyota and Royal Dutch Shell.
Now, the IMF is planning to issue $500 billion of new SDRs, although some Democrat senators are lobbying for an issue of $2 trillion SDRs or more.