When politics and economics meet we get a reality show like no other, and if you think it has nothing to do with you think again. What are the main ingredients in all reality shows? Some of the main ingredients are drama, power play and the formations of cliques. Usually the participants all have a different point of view and in most cases when they make their case it seems like they have a valid point, until you hear the other side of the story.
The IMF in 1969 created the SDR (special drawing rights). SDRs are essentially a world currency. It is made up of the most widely used currencies in the world. The current SDRs value is based on the basket of four key currencies, the US dollar, the Euro, the yen and the pound sterling. The possible inclusion of the Chinese yuan has been pushed forward to September 2016. Many were expecting to hear the news of the IMF decision later this year in October. However, it is now clear that this will be pushed forward because China still has some work to do in opening up its markets. One of the key criteria is that the reserve currency must be “freely usable” this means China needs to liberalize its financial markets.
Here is why this information is important to you. There is the fear that the yuan may dethrone the US dollar as the world reserve simply because of the sheer size of the Chinese economy and China’s expected growth. In reality, it is quite unlikely that this will happen in the short term. Jim Rickards, author of Currency Wars and Death of Money, says that there is a 10 year plan by the IMF to replace the dollar a the default reserve currency. So while it is true that you do need to look carefully at your investment portfolio there is no need to make rash decisions. As it stands there is still more confidence in the US currency because of its open markets.
There are a few things that the average investor needs to keep in mind. When it comes to your investments be wary of where you are getting your advice from. Make sure it is from a reputable and trustworthy source. Savings are important and that investors should focus on physical assets such as gold, real estate, fine art and cash. Rickards recommends investments involving energy, transportation and natural resources. These are excellent suggestions, even if there is no imminent financial collapse on the horizon. If your current investment portfolio contains mostly insurance policies, bank deposits, and retirement benefits think what will happen if there is a major crash tomorrow. All your balance will drop to zero or near zero. It makes sense to invest in tangible assets that will not vanish overnight. An investment in key sectors in the economy is also generally a good move. When you invest in things that people will need and continue use in both good and bad times you have your bases covered.
No one knows what will happen. Hindsight has 20/20 vision, but foresight is not so clear. Nevertheless, we don’t necessarily have to move forward completely blind. We can step forward with a few props. These props are the steps we take to prepare a stronger financial base for ourselves and our families. It is important we get the right information and more importantly the right advice.