Sunday, October 2, 2016

Yuan Joins the SDR Basket - East vs. West Media Reports

The Chinese Yuan is now part of the SDR currency basket used at the IMF. This event has been anticipated for quite awhile now with all kinds of reactions to it available depending on what media you are looking at. An interesting thing for me is to watch how eastern based media report news like this contrasted with western media. Below are a couple of links to such articles that provide an example. The western media tend to mostly yawn and say there is no real impact while eastern media are inclined to describe it as a significant event. Below are the links an a few quotes.

----------------------------------------------------------------------------------------------------------- - Inclusion of the Yuan to help create more multipolar economic order (eastern media)

"The inclusion of China's renminbi (RMB) in an elite currency basket -- a historic milestone for the country and the international monetary system -- will help create a more multipolar economic order and advance reforms of the international monetary system.

The International Monetary Fund's (IMF) officially adds the RMB to its new Special Drawing Rights (SDR) basket as a fifth currency, along with the dollar, the euro, the Japanese yen, and the British pound.

The decision to include the RMB in the SDR basket, as IMF Managing Director Christine Lagarde put it, is an "important milestone" in the integration of the Chinese economy into the global financial system and reflects the progress made in reforming China's monetary, foreign exchange and financial systems.

On the one hand, the inclusion of the RMB in the IMF's SDR basket will enhance the currency's international credibility, benefiting countries, enterprises and individuals.

On the other hand, the inclusion of the RMB -- the only emerging market currency -- in the "world reserve" will help the flawed international currency system monopolized by the dollar to advance toward a multipolar world, making it more stable, representative and contemporary."

"China's yuan joins the International Monetary Fund's basket of reserve currencies on Saturday in a milestone for the government's campaign for recognition as a global economic power."

. . . .

"U.S. Treasury Secretary Jack Lew said on Thursday the yuan was "quite a ways" from true global reserve currency status. The new IMF status recognizes the "enormous" change in China in the last 10 years that had made the yuan more open, but Beijing still had work to do to make its currency and its economy more market-driven, he said. "Being part of the SDR basket at the IMF is quite a ways away from being a global reserve currency," he said.

Capital Economics said inclusion of the currency in the IMF's SDR basket will have minimal impact on foreign demand for yuan assets, so "offers little support" for the currency."

"The Chinese yuan has been added to the IMF reserve basket, becoming the first currency to be added to the list since the emergence of the euro in 1999.

. . . . 

The decision means the Chinese yuan will now be used as one of the International Monetary Fund’s lending currencies in times of emergency economic bailouts. This sort of internationalization is in line with China’s wish for increased legitimacy of its currency."

The move is also evidence of China’s growing role as a power to challenge the global economic dominance of the United States."

"It’s been a year in coming, but the Chinese yuan will be added Oct. 1 to the International Monetary Fund’s basket of currencies.

. . . . .

Wells Fargo says the investment implications of the yuan in the IMF basket, at least in the near term, are “limited.” Their reasoning “what makes a reserve currency a dominant store of value, like the U.S. dollar, is its usage—along with the institutions that support its use … [and] the size of IMF special drawing rights (SDR) reserve assets relative to total global international reserve assets is small.” 

My added comments: These are some good examples of the different way various media can present the same event. Please note the lines I put in bold type to see the different slant each side seems to take:

Eastern - Inclusion of the Yuan is an important step away from a monetary system dominated by the US dollar

Western - Inclusion of the Yuan will not have much impact and the dollar will continue to dominate the monetary system

Also, please note the comments by US Treasury Secretary Lew. His comments agree completely with what multiple sources I view as highly credible tell me regularly by email. The US has zero interest right now in moving away from a US dollar based system and towards an SDR based system (as Harald Malmgren said in a recent comment on Twitter).

Again, this is just more evidence that it will probably take another major global crisis to motivate any kind of major changes in the current monetary system despite the fact that both Russia and China seem to want the changes to happen as soon as possible. The West (and especially the US) don't appear interested in any major monetary system changes any time soon. Without a crisis, expect these kinds of change to take years at the least, maybe decades.


  1. This is huge in my opinion, yet little coverage by our mainstream media. This is one step toward a basket of regional currencies and adding commodities and other assets to help give some confidence in the international monetary and banking system in case the dollar loses credibility fast in a crisis. China is the manufacturing powerhouse of consumer goods for the world, along with Korea. I think this is a good step. I believe in diversifying risk, and since all major assets and currencies are in a bubble, this can help.

  2. Thanks Doug. Appreciate your thoughts as always.