Monday, March 2, 2015

East Asia Forum: Is now the time to include the Renminbi in the SDR basket?

The drum beat out of Asia to get the Chinese renminbi included into the SDR basket at the IMF this year continues. This new article appears in the East Asia Forum. Below some quotes from the article and then some comments.


"As the next five-year review of the IMF’s international reserve asset approaches, reviewers should strongly consider the case for including the Chinese yuan in the basket."

"The Special Drawing Rights (SDR) is an international reserve asset used to supplement IMF member countries’ official reserves. Its value is based on a basket currently consisting of four key international currencies. This includes the US dollar, euro, British pound and the Japanese yen currently."
"The IMF has two criteria for SDR basket currencies. First there is the ‘major trading country’ criterion. This applies to currencies whose exports of goods and services during the five-year period ending 12 months before the effective date of the revision had the largest value. Then there is the ‘freedom of use’ criterion for currencies determined by the IMF to be widely used to make payments for international transactions and to be widely traded in the principle exchange markets."
"In the 2010 review, the renminbi was deemed to meet the first criterion. But it fell short on freedom of use."
"So what are the renminbi’s prospects in the review in 2015?"

Here is the final appeal in the article for inclusion in the SDR basket this year.
"Including the renminbi in the SDR would make the value of the basket more representative of the structure of world trade improving the basket’s legitimacy. The renminbi would also play an important role in balancing, the more independent US dollar, especially if China’s exchange rate regime is made more flexible.
Now is the time for the renminbi to enter into SDR basket."
My added comments:
Every time we see a new article on this out of an Asian media source it just confirms that China is working hard to get this done. This does not suggest that China is planning to leave the IMF and back the yuan with gold on its own (as you see around the internet quite a bit). But we will try to stay on all the news related to both sides of the story. Who knows how all this will turn out? What we know for sure is that China is buying huge amounts of gold and that they are working hard to get the Renminbi included into the SDR basket of currencies at the IMF.

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