What are Special Drawing Rights (SDRs) and What are their Purpose?

Definition

SDRs are defined in terms of a basket of major currencies used in international trade and finance. At present, the currencies in the basket are, by weight, the United States dollar, the euro, the Japanese yen, and the pound sterling. Before the introduction of the euro in 1999, the Deutsche Mark and the French franc were included in the basket. The amounts of each currency making up one SDR are chosen in accordance with the relative importance of the currency in international trade and finance. The determination of the currencies in the SDR basket and their amounts is made by the IMF Executive Board every five years.

The exact amounts of each currency in the basket, and their approximate relative contributions to the value of an SDR, in the past were and currently are:^[1]

Purpose

SDRs are used as a unit of account by the IMF and several other international organizations. A few countries peg their currencies against SDRs, and it is also used to denominate some private international financial instruments. For example, the Warsaw convention, which regulates liability for international carriage of persons, luggage or goods by air uses SDRs to value the maximum liability of the carrier.

In Europe, the Euro is displacing the SDR as a basis to set values of various currencies, including Latvian lats. This is a result of the ERM II convergence criteria which now apply to states entering the European Union.

SDRs were originally created to replace Gold and Silver in large international transactions. Being that under a strict (international) gold standard, the quantity of gold worldwide is relatively fixed, and the economies of all participating IMF members as an aggregate are growing, a perceived need arose to increase the supply of the basic unit or standard proportionately. Thus SDRs, or "paper gold", are credits that nations with balance of trade surpluses can 'draw' upon nations with balance of trade deficits.

So-called "paper gold" is little more than an accounting transaction within a ledger of accounts, which eliminates the logistical and security problems of shipping gold back and forth across borders to settle national accounts.

Joseph Stiglitz has argued that usage by central banks of SDRs as foreign exchange reserve could be viewed as the prelude to the creation of a single world currency.^[2] It must be understood that Gold and Silver have filled the role as global currencies for several thousand years of recorded history, and that the SDR as a storage of value is not a normal fiat currency.

It has also been suggested that having holders of US dollars convert those dollars into SDRs would allow diversification away from the dollar without accelerating the decline of the value of the dollar.^[3][4]

http://en.wikipedia.org/wiki/Special_Drawing_Rights

Q. What are your reasons for thinking that "Islamic banking isn't Islamic"?

Nadine Marroushi interviewed Tarek El Diwany in London during Summer 2007.

A. "My point is a little more refined than that. I am saying that Islamic commercial banking is not Islamic, and this is because commercial banking is a combination of usury and misrepresentation. The practice of usury is obvious and involves the advancing of money now in return for more money later, while the misrepresentation is less obvious and involves the creation of money out of nothing. Most of the time, the money that commercial banks lend is money that they themselves have created. Since neither usury nor misrepresentation can be Islamised, and since the business model of commercial banking requires both, there cannot be such a thing as Islamic commercial banking. For the same reason, there cannot be such a thing as an Islamic central bank. Historically, the Muslim world has had neither commercial banks nor central banks, though of course it did have institutions that fulfilled permissible functions such as payment transfer. In our rush to create an Islamic banking and finance industry, we have forgotten to ensure that the money we are using is itself Islamic. Islamic finance cannot be practiced with money that is un-Islamic. We therefore need a very fundamental reform of the institutional framework in Islamic banking and finance, but unfortunately the industry is simply refusing to address the issue."

http://www.islamic-finance.com/item149_f.htm

Interest

The amount of money charged by a lender / paid by a borrower for the use of money over a given period of time is referred to as interest. Thus a man who borrows $100 for one year and repays the $100 plus an extra $10 to the lender, has paid $10 interest. Interest is often expressed as a percentage of the principal. Here the rate of interest would be 10% per year since $10/$100 = 10%.

Islamic Banking isn't Islamic

by Tarek El Diwany
Original Summer 2000; updated June 2003

An abridged version of this article was published in Banker Middle East during November 2002

These are all signs that something has gone badly wrong in this industry. But I'm not saying that it is all the fault of the people on the inside. The Western academic establishment is at least partly responsible for the way that the Islamic financiers are thinking. For example, because Brealey and Myers have written a standard text on corporate finance, they are probably as big a force in Islamic finance as Judge Taqi Usmani. It is awfully hard to escape from the value judgements that the overwhelming mass of usury-based finance books contain. That's why an educated Muslim in Islamic finance can ask his client a shocking question such as 'what cost of finance are you looking for?' without thinking twice. He's been taught by Brealey and Myers that fixed-rate finance plays a part in any 'good' financing structure and so off he goes in search of a way to do fixed-rate finance Islamically. The possibility that fixed-rate finance may be completely incompatible with Islam in the first place may not even occur.

http://www.islamic-finance.com/item100_f.htm

Islamic Banking: Steady in Shaky Times

Principles Based on Religious Law Insulate Industry From Worst of Financial Crisis
By Faiza Saleh Ambah
Washington Post Foreign Service
Friday, October 31, 2008; Page A16

JIDDAH, Saudi Arabia -- As big Western financial institutions have teetered one after the other in the crisis of recent weeks, another financial sector is gaining new confidence: Islamic banking.

Proponents of the ancient practice, which looks to sharia law for guidance and bans interest and trading in debt, have been promoting Islamic finance as a cure for the global financial meltdown.

This week, Kuwait's commerce minister, Ahmad Baqer, was quoted as saying that the global crisis will prompt more countries to use Islamic principles in running their economies. U.S. Deputy Treasury Secretary Robert M. Kimmet, visiting Jiddah, said experts at his agency have been learning the features of Islamic banking.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/30/AR2008103004434.html

What is the Community Exchange System?

The Community Exchange System (CES) is a community-based, global trading network using a money other than our familiar national ones — an alternative, parallel, local, community or complementary currency system. In short, the CES is a new money system.

What is your signature innovation, your new idea, in one sentence? - A new, usury-free money and banking system for the commons, free of private control and manipulation.
Describe what makes your idea unique—different from all others in the field. - Complementary currencies are growing in popularity throughout the world but these are mostly stand-alone initiatives. The CES is the first global complementary currency network. It is an attempt to introduce a new, community-based but global money and banking system. It uses a money that is fundamentally different from our conventional national monies. This money does not 'exist' like conventional money and as such does not have to be 'created' and there is thus no need to 'have' it before anything can happen. CES 'money' is a retrospective record of what has already happened, not a barrier preventing things from happening. Although the CES is internet based it works for those who do not have computers through local-area 'branches'. Trading is streamlined as it is the sellers in the system who enter or get entered the transaction records. This eliminates the frustrations involved in getting paid: sending accounts, waiting for payment, debt collecting, bad debts etc. A seller can never not get paid. By placing the power of money control in the hands of sellers, the employer/employee relationship is turned upside down.

Tim Jenkin
Administrator
Community Exchange System
(NGO)

Project URL: http://www.community-exchange.org
Source: http://www.changemakers.net/node/9749

The Money Fix Trailer

A Film by Alan Rosenblith