Saturday, December 12, 2015

Benjamin Cohen: Adding the Yuan to the SDR Basket Was a Mistake by the IMF

The recent announcement by the IMF to add the Chinese yuan to the SDR currency basket has created a lot of interest and comment. In this interview on Kitco, Professor Benjamin Cohen (U. of California) says the IMF made a mistake and added the yuan based on politics instead of on merit. Below is a text summary of the interview from Kitco.

"Monday, the International Monetary Fund announced that the yuan — the Chinese currency, also known as the renminbi — would join the organization’s basket of reserve currencies known as special drawing rights (SDRs). The yuan will now sit side by side with the U.S. dollar, the Japanese yen, the British pound and the euro as one of the most significant currencies forming part of the global economy. And one professor says the move by the IMF is a ‘mistake.’ Benjamin Cohen, professor of international political economy at the University of California, told Kitco News that the IMF’s decision is clearly made on ‘political grounds and not technical grounds.’ ‘Until now, since the birth of the SDR in the late 1960s, the eligibility for the basket that determines the value of the SDR has always been treated as purely technical matter,’ he explains. ‘By most measures, the yuan falls short of what would be normally been accepted in the past.’ According to Cohen, the Chinese government has made every effort to persuade the major powers, behind the scenes, to push its currency towards reserve status. Using the British government as an example, he says it is no surprise the British were the first Western country to push for the yuan’s SDR inclusion given that the country is trying to promote what they call a new ‘golden era’ of relations with China. However, the Chinese government has implemented some improvements in terms of access to its currency, but Cohen says it is still not enough. ‘What they have done here is to move just enough to persuade the IMF staff that they’re moving in the right direction. Whether they will continue to move in this direction, now that they’ve gotten what they wanted, is another matter and we just don’t know,’ he says. Kitco News, December 3, 2015."

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