IMF New Currencies & World Economy 
By Walter Sorochan

Posted January 3, 2016; updated January 5, 2016.

Since 2013, the world has focused on economic crises in Greece, Europe and South America, while paying little attention to United States, China and India.  That is, until November 2015.

The crisis in Greece continued while the stock market in China continued to slide down.  The Wall Street stock market likewise has not been very good for investors in 2015.  The continuous printing of US dollars without collateral backing has continued to add to a massive national debt, therby making the economic future most uncertain. Slim Feriani, CEO of MENA Capital, said that while Greece was a concern, Fed monetary policy was a bigger worry for markets. "The bigger cloud hanging over markets in general in the next 6-12 months is the Fed and what they do and when," he said in October 20, 2015.

Well, several economic things did happen in 2015! The International Monetary Find [IMF] admitted China's money into the World's Reserve Currency, the US raised interest rates, the European Union appears to be breaking up and such uncertainty has caused European investors to re-route their investments from Europe to United States.  You should not overlook the continuing decline in the purchasing power of the US dollar.

Interrnational Monetary Find: Before you read any further, some readers may not know what the International Monetary Find [IMF] is. IMF was created to pay for purchase of goods between countries with different currencies.    The IMF also supervises an international system of currency exchange rates, indeed setting forth to stabilize exchange rates; as well as providing financial help to developing countries [in financial trouble] by providing subsidized long-term loans, with strings attached, to governments that mismanage their economies.  The IMF is managed by wealthy countries.

How does the international monetary exchange work? You can find the monetary exchange rates for all countries in the daily changing chart: Representative Exchange Rates for Selected Currencies for January 2016. A good example is comparing the Canadian dollar to that of United States. As of January 4, 2016, the Canadian dollar was worth .6031 cents to the USA $ 1.00 dollar. The purchasing power of the Canadian dollar is compared to the US dollar value and changes every day. Or exchanging Canadian money for US money in a bank, the adjusted exchange will likewise take place. When a Canadian wants to buy a product from United States, the product will cost the Canadian $ 1.3969; or 0.3939 cents more on January 04, 2016. IMF facilitates this monitary 'purchasing power' exchange transaction in an equitable manner between banks in both countries. Such bank exchanges also take place between all countries.

World Currency Reserve: Prior to admitting China into the World's Reserve Currency status, there were officially 7 recognized currency exchange countries to pay for purchase of goods between countries, as listed in the  illustration below.  China became the eighth country to have this distinction.

The Chinese renminbi was anointed as one of the world’s elite currencies on November 30, 2015, a milestone decision by the International Monetary Fund that recognizes China’s rising financial and economic importance.

The move will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power.

Below is a graphic illustration on the left of the previous 7 countries recognized by IMF and the new 8 countries that include China [red] on the right:

IMF7IMF china

China's addition to the IMF could have a dramatic affect on USA and the world.

Fed Interest Hike:The timing of the Fed's first rate hike since 2006 and the pace of subsequent monetary tightening is viewed as one of the biggest risks to global markets – from emerging markets, which are seen among the most vulnerable to a rise in risk aversion, to bond markets, which have already seen heavy selling.

Cyberattack on banks: The real money scare today and in the future is threat from cyberattack or hackers. E.B. Tucker, editor of The Casey Report , explains:

"In today’s high-tech world, the lifeblood of our economy is a complex system of digital payments, digital book entries, and digital money.

Billions of dollars are electronically transferred every day. We bank online, shop on our computers, and pay for lunch with credit and debit cards. Even the stock exchanges are now 100% electronic.

The money in your savings, brokerage, and credit card accounts are just bits and bytes. A skilled hacker could steal it or make it vanish completely.

As cybersecurity expert, Mary Galligan, recently told Bloomberg News, state-sponsored cyberterrorism is “the FBI’s worst nightmare.” The fallout from a cyberattack could be catastrophic…

Our monetary system is built on confidence, and confidence alone.

If lots of people questioned the safety of the system and pulled their money out, it could trigger a nationwide run on the banks, a stock market collapse, and a currency crisis. It could literally lead to rioting in the streets."

Decline in purchasing power of US dollar: You can get a feel for how this is impacting on you by reading about: Decline in purchasing power. You can calculate the purchasing power of your money up to 2015.

Best wishes for a prosperous New Year!

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References:

Bradshernov Keith, "China’s Renminbi Is Approved by I.M.F. as a Main World Currency," The New York Times, November 30, 2015. Bradshernov: IMF approves China money 2015

IMF, "Representative Exchange Rates for Selected Currencies for January 2016," January 05, 2016. IMF: Exchange rates 2016

Sorochan Walter, " Decline in USA Dollar and inflation," December 17, 2014. Sorochan: Purchasing power US dollar 2014