Saturday, October 25, 2014

IMF Fights Negative Interest Rates (on SDR's)

It seems that the idea of having interest rates go negative on its SDR currency is not appealing to the IMF. With some of the component currencies (the euro and yen) now yielding below zero rates, the SDR itself could actually have a negative yield. With deflation the worry of the day, the IMF decided to make sure that doesn't happen. Below a few quotes and a comment.

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"The IMF said that from Monday it would maintain a floor rate of 0.05 per cent, or five basis points, on its special drawing rights or SDR currency, which represents a basket of the currencies of its largest members."

"With short-term rates for key SDR components the euro and the yen now running below zero, and the dollar and pound rates barely above zero, that risked pulling the SDR rate down to a negative level as well, a senior fund official explained."
"Under the current rule there is nothing to stop the SDR rate from going negative," he said. "Financially, it would be a somewhat perverse situation because our creditor members would be paying for providing us resources."
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My comment: You have to chuckle a little at that last underlined statement. When governments want to issue bonds with virtually no return or even negative returns that is OK. But when governments are on the receiving end of that situation, that just won't do. In fact it is a "somewhat perverse situation" :)



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