Two years ago this month there was a lot of talk coming from China and Russia urging for a new world reserve currency in the face of a weakening dollar.  In fact the Chinese were calling for the IMF to create a “super-sovereign reserve currency” which would turn the IMF in to a world central bank.

It just so happens that the IMF has already had a currency of its own called the SDR since 1969.  However at the time that China was calling for a new reserve currency the SDR was not a convertible currency.  It was only used to boost the reserves of a particular country, giving that country a stronger balance sheet which allowed that country to borrow more.

That all changed in September of 2009 when the IMF made the SDR fully convertible.  The IMF also doubled the amount of SDRs in circulation.  Last month the IMF announced that it had a plan to use the SDR as the world’s reserve currency and is suggesting that they print trillions of dollars worth within the next few years.

What is amazing is that back in March of 2009 when all of the talk coming from China first emerged Timothy Geithner had this to say: Washington is “quite open” to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.  He later had to explain himself further as the dollar started to drop in value.  But I think that this statement highlights the fact that the plan all along has been to use the SDR as the new reserve currency, which is being emphasized by the IMF’s recent plan.

What we as Americans need to prepare for is the possibility of a new world reserve currency.  If we lose this status, US Dollar demand will drop dramatically and will cause a massive loss in value for the Dollar.  This will cut the value of anything that is Dollar denominated.  There are many ways to protect yourself, but at ITM Trading we believe that gold is the best way to do it as it is the only true form of real money.  Gold is a currency in its own right.  It is the perfect hedge against inflation, hyperinflation or currency collapse.

The handwriting is on the wall in regards to where the dollar is headed.  We can’t keep printing money to bail ourselves out; the world just won’t allow it for too much longer.