The Guns of October: The IMF, 2015, and a Crypto-Fiat Market Explosion
October 2015 will mark the 42nd anniversary of the Yom Kippur War, or the Ramadan War, depending on how it is being described. It is also going to be the month in which the IMF meets to discuss SDRs, or Special Drawing Rights, which were redefined in 1973 as "a basket of currencies" (euro, Japanese yen, pound sterling, and U.S. dollar).
This much is obvious, but what is not discussed at all is what the potential effect of the IMF and its decisions relative to SDRs in October 2015 could have on:
1) China and the US dollar
2) Certain Central American countries
3) and even Cryptocurrencies
First, an overview of SDR and some background of the situation:
The SDRs are further described here at an IMF site:
A brief quote from this page:
"The basket composition is reviewed every five years by the Executive Board, or earlier if the IMF finds changed circumstances warrant an earlier review, to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. In the most recent review (in November 2010), the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services, and the amount of reserves denominated in the respective currencies that were held by other members of the IMF. These changes became effective on January 1, 2011. In October 2011, the IMF Executive Board discussed possible options for broadening the SDR currency basket. Most directors held the view that the current criteria for SDR basket selection remained appropriate. The next review is currently scheduled to take place by the end of 2015."
The IMF meets October 9-11, 2015 and is likely to alter the SDRs at that time. See:
What is the most likely currency to be included?
While it's difficult to say, it could be the yuan.
What are concurrent announcements that will be affecting the market at the same time?
Various states, and possibly the International Monetary Fund itself, will examine hybrid currencies, such as those utilizing bitcoin technology while also also adding a layer of state-backed code to limit the use of technology and create state-backed crypto-fiat. Indeed, this has already been happening to some degree:
Note that in a prior year the IMF was involved in discussing bitcoin and the blockchain.
Some people actually cheer these developments (of banks and states adopting some form of hybrid crypto-fiat technology), but some observations should be noted, that the banks themselves (in the form that they have existed traditionally and currently) are generally failed institutions. We also see that they are gradually having to close their branches:
Bank branches in US decline to lowest level since 2005 (updated Sept. 29, 2014)
Social purpose of banks estimated to be close to zero (Oct. 3, 2014)
American branch banks closing faster than new ones are opening (April 28, 2014)
ATMs not the only thing disappearing at BofA, it's closed most of its branches, too (July 26, 2012)
In an insightful post titled "Greeks and Chinese Learn the Hard Way," Matt Odell describes several examples of how there have been recent failures and systemic problems which have resulted from leaning on traditional institutions - Greece, China, France, and in the USA.
Yet the suggested solution - bitcoin - isn't going to be able to save people from these situations either, for the following reasons.
WHAT WILL HAPPEN IN OCTOBER 2015 AND BEYOND, WHY SHOULD YOU CARE, and WHAT SHOULD YOU DO ANYWAY?
If the IMF alters the SDRs to include the yuan, and, or makes other alterations to rules which would phase in a crypto-fiat currency into the SDRs, the following would happen:
- The US dollar would likely decline in value significantly, but with the system overleveraged as to credit as it is at present, there will be be an inability for people to withdraw (similar to what we see currently in Greece in terms of lines in front of the ATMs).
- China's institutions are failing and in the past have been used by the US government which has sought out China as a lender. China's GDP growth figures are (largely) faked. The US is indebted to China, and China cannot keep throwing money at the USA. Although China is currently the US's top foreign creditor, this sort of reliance cannot stand forever.
China's recent situation does look indeed like 1929 all over again:
- Countries which have relied solely upon a stronger US dollar will be in for a shock. For example, in January 2000, Ecuador (South America), in the context of a deep economic and political crisis, adopted the U.S. dollar as its legal tender. This also happened with El Salvador (Central America). The consequences of full “dollarization” are that the country doing this completely gives up control of monetary and exchange rate policy and loses its ability to respond to a sudden run on bank deposits throughout the entire system. Foreign aid systems will be likewise impacted.
- Decentralized, distributed cryptocurrency could be relied upon as a buffer, but one of the most popular ones, bitcoin (BTC at bitcoin.org), could actually become less accessible to the world if the dollar sharply declines in value due to IMF announcements on the yuan, and bitcoin then steeply rises in value in October. This is because of gradual changes involving the evolution of the network which are making bitcoin more expensive to transact in. Consider other decentralized, distributed currencies to enter the market if BTC fees are too expensive, or use a variety in combination (BTC and others). One that should be considered is bytecoin (BCN at bytecoin.org).
- At the same time, to comment on the United States weather effects on communities in particular, winter storms, if they arrive, will be likely to affect communities' infrastructure, as well as food and water supplies, with the potential of causing costs of basic supplies to be higher than they would already be otherwise.
Probably the best thing that one can do to prepare for what may come post-October 2015 is to do what any reasonable person might do in preparing for a natural disaster ~ if you live in a earthquake zone or a tsunami hazard area, or an area that could be subject to heavy storms such as tornadoes, you've hopefully already done this, but have a kit that includes at least two weeks supply of (ideally freeze-dried or some kind of camping style) food and water sealed in a pail or easily carryable buckets, a first-aid kit, and other things as needed ~ some ideas are here:
Prepare. The Guns of October are coming.