BITCOIN, BUILLION, BANKNOTES and XDR’s (Special Drawing Rights)

The “Weaponization” of the USD and Frozen Assets Could Impair Dollar Hegemony Faster Than Expected As a Result of a Currency The US Helped Build and Champion.

On August 1st 2022, Russia may no longer even need to worry about the US blocking accesso to transactions denominated in the Dollar. Even now, the XDR or special drawing right has allowed for a gigantic hole in the sanctions on Russia’s economy.

Let’s start out by explaining how this Asset Backed Security Works. Starting out in 1973 XDR = 1 USD as of exchange rates at noon daily in London. While it is not a currency (more on that later) it has the characteristics of one: Unit of account, medium of transaction and store of value. The difference between an XDR and a typical fiat currency is what gives it value. The lack of government affiliation to back the XDR with exports, monetary policy and a tax base means it has no inherent value outside that of the currencies it is composed of. Each XDR = a basket of five major reserve currencies:

USD: 43% EURO: 31% YUAN: 11% Yen: 8% POUND: 8%

Last year just under half a TRILLION dollars in XDRs was allocated to all member states across the globe and described as a critical source of financing to help combat the pandemic making the value of existing XDRs = 1T USD. The second largest allocation was 2009 and only 169 Billion. The 2011 allocation was 20.1. These last 6 months have been unprecedented in terms of unrestricted global capital followed by some of the most isolationist economic policies since the Cold War. Oddly enough, the need for global trade and the complications arising from deficiencies in logistics have been at an all time high as food and energy security remain at the top of the agenda.

In this case vaccines are more likely bullets or missiles but the concept applies.

For many countries, along with securing critical healthcare goods and raw materials, shortages have been worsening and demand is rising for goods ranging from strategic metals to fertilizer and lumber. As a transnational institution governed by representative ownership- the alignment of interest when it comes to keeping options open for back door imports/exports is strong for all member states. This is especially true for countries like Russia, Germany, UK, US, China and Belarus. While economically necessary and politically unpopular trade can now occur in currency, debt and commodity markets- some countries will benefit more than others and the Dollar dominance is under threat. Already damaged after the US printing frenzy created rapid inflation, it was further shaken when Biden simply erased Russian reserves off the balance sheet and removed the SWIFT code for the Ruble.

With Current Information on Allocations showing the US at 80k, China and Japan at 30k, and Germany at 25k, UK and France at 20k, Russia at 12k, Canada, Brazil, Mexico and Saudi at 10k, Norway and Venezuela at 3.5k and other EU countries between 1k-5k, you can get a pretty good idea of the true economic power when adjusting for the PPP, liquidity and credit quality of a currency.

(.50* GDP + .30 * Openness +.15 * Variability + .05 * Reserves)^Compression Factor = Quota Re-Allocations Multiplier

This is what was used to determine the relative value of an economy and it’s currency before the formula took on an export focused mandate including still the rank as held in other countries reserves supported by a liquid and unrestricted capital flows (Yuan exempt).

Now that we know Germany and the EU will need to pay Russia EURO’s to buy gas or face mass deaths due to loss of thermal power supply and electricity outages across major grids as back up generators run out of diesel or funds to afford more. Hospitals will shut down, entire grocery stores will go bad and civil unrest would contribute to further social decline. China needs the heavy crude for both infrastructure (roads made from asphalt, waterproofing for buildings and utilities) and energy. The Agricultural exports to Eastern Europe and lumber to manufacturing companies in Europe and China comes from many Russian mills. Lastly, metals and diamonds including gold, silver and PMGs will be melted down and likely converted to USD or Pounds to allow for even easier conversion to other reserve currencies in the basket. With ECB, LME and the CCP willing to act as the broker for Russian goods and financial services, XDRs combined with ETH and BTC markets have made the sanctions on Russia more symbolic with Russia insulated from near term financial meltdowns.