The SDR is a fake currency issued by the International Monetary Fund.
It was invented in 1969, the first year of the Nixon administration. It was a stop-gap measure to save the fixed exchange rate system of currencies, which came into existence in 1946, when the 1944 Bretton Woods system was implemented.
A fixed exchange rate is a government-imposed price control on currency prices. It cannot survive. No price control system ever does. This is the heart of the matter. When you think “fixed exchange rates,” think “price control.”
The controls never worked well. There were devaluations. But they were always overnight operations — denied by government officials right up to the devaluation.
Bretton Woods was a bureaucrat-engineered Rube Goldberg system. It was developed mainly by a Communist agent in the Treasury, Harry Dexter White. This Soviet connection was denied by liberals for over 60 years, but a book by an economist with the Council on Foreign Relations, Benn Steil, has settled the issue. Here is the CFR’s review of the book. In April 2013, the CFR’s journal, Foreign Affairs, ran article by the book’s author. The article was titled, “Red White.”
White thought that capitalism would collapse within a decade. He thought the USSR would become the dominant economic power. The IMF was White’s way to make the transition. He thought it would fail, and said so. The Truman administration therefore ignored the IMF. Steil writes:
Truman’s State Department effectively mothballed the fund, dismissing the assumptions that had underwritten White’s earlier belief in it: that Soviet cooperation would continue into the postwar period; that Germany’s economic collapse could be safely, and indeed profitably, managed; that the British Empire could be peaceably dismantled; and that short-term IMF credits would be sufficient to reestablish global trade. These assumptions had been based on “misconceptions of the state of the world around us,” Dean Acheson, Truman’s final secretary of state, later reflected, “both in anticipating postwar conditions and in recognizing what they actually were when we came face to face with them. . . . Only slowly did it dawn upon us that the whole world structure and order that we had inherited from the nineteenth century was gone and that the struggle to replace it would be directed from two bitterly opposed and ideologically irreconcilable power centers.”
In short, the IMF was correctly seen as a useless bureaucracy. It still should be.
(For the rest of my article, click the link.)