Earlier this month, the G20 summit was held in China. One of the more interesting topics discussed, was the addition of Chinese yuan to the International Monetary Fund Special Drawing Rights. The topic is rather important, but it doesn't seem to be discussed all that widely in the crypto community.
To facilitate the International Monetary Fund's (IMF) main goal of ensuring the stability of the international monetary and financial system, the IMF maintains a currency reservoir. When joining the agency, each country is assigned an initial quota, based broadly on its relative position in the world economy. Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account. Their value is based on a weighted basket of currencies; currently 41% USD, 31% EUR, 11% CNY, 8% JPY and 8% GBP.
A Review of the Method of Valuation of the SDR basket is conducted every five years by the IMF’s Executive Board, or earlier if warranted by developments. The purpose of the review is to ensure that the basket reflects the relative importance of major currencies in the world’s trading and financial systems, with a view to enhancing the SDR’s attractiveness as a reserve asset.
"The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”
- Ms. Christine Lagarde, Managing Director of the IMF
Special Drawing Rights are posed to replace the dollar as the world reserve currency. They serve well as a unit of account due to lower volatility, can work well in international law as they have an objective measurement of value across multiple countries, and some countries have even started pegging their currency to the SDR due to increased transparency.
While the IMF and SDRs might not be an entirely ideal solution to creating a new, global currency, with US having a veto power and failing to ratify some reforms for example, it might be a step in the right direction. They also fall short in a one key area, they are inaccessible to anyone short of a government. This can limit how useful the currency can be for creating international settlement, or using it as a measurement of value for corporations or even individuals.
If SDRs were a publicly available and tradable currency, it would be really interesting to see it used for pricing items, wages, and countering currency wars. If your wage is pegged at 3000USD/month, whether USD goes up or down, you're paid the same amount of dollars. But if your wage was instead set at 3000SDR/month, you would receive the same value each month, no matter if it meant you got 2500USD when the dollar is strong, or 3500USD when it was weak. This could give anyone a protection from government meddling.
Creating a currency based on a basket of other currencies is not an entirely new idea in the crypto space either. Paul Grignon, author of Money as Debt, described his take on the idea as a Digital Coin back in 2009. A part of the system, called Perpetual Coin, would initially be issued based on a value of a basket of currencies. Unfortunately, the project never left the conceptual phase, and the website is down now, so it is unlikely we will see it ever implemented.
"The purchase price of one Perpetual Coin in any currency can be established according to the foreign exchange markets."
- Paul Grignon, Digital Coin in Brief
Other than that, there doesn't appear to be an SDR-pegged cryptocurrency out there. This might perhaps be due to the fact that we already have a better alternative to the Special Drawing Rights - Bitcoin. What it lacks in stable value at times, it more than makes up in terms of being all-inclusive and, at least so far, immune from government influence.
It wouldn't be hard, however, to create an SDR-Coin. It could function like Tether, or perhaps more accurately like BitUSD, since you couldn't exactly withdraw the coin. The main problem for a centralised issuer would be keeping the valuation of the currency stable, especially in periods where the basket of currencies is adjusted. Other than that, once the currency itself is created, it would be interesting to see it start being used internationally.
Perhaps we would finally see what is the real demand for SDRs for corporations and real people, rather than just governments. With any luck, this might just hurry the demise of the USD or "petrodollar" hegemony.