Wednesday, May 20, 2015

Bloomberg: Here is a Big Reason China Wants the Yuan in the SDR Basket this Year

There are many reasons why China wants to see the Yuan included in the SDR currency basket later this year. The added prestige is a factor. Wider adoption of the Yuan around the world as a reserve currency is a huge factor. This Bloomberg article points out that as much as $1 Trillion in global reserves could move into the Yuan if the IMF approves it later this year. Below are some quotes and then a comment.

"At least $1 trillion of global reserves will switch into Chinese assets if the International Monetary Fund endorses the yuan as a reserve currency this year, according to Standard Chartered Plc and AXA Investment Managers.

People’s Bank of China officials have called for the IMF to include the yuan in its reserve basket -- which consists of the dollar, euro, pound and yen -- in a review later this year. An inclusion could spur as much as 6.2 trillion yuan ($999 billion) of net purchases of China’s onshore bonds by end-2020, Standard Chartered estimates. AXA Investment Managers says about 10 percent of the $11.6 trillion of global reserves will flow into yuan assets. It didn’t give a timeframe.
What is significant is the seal of approval by the IMF that the yuan has internationalized as a reserve currency,” Aidan Yao, senior emerging-market economist at AXA Investment, said in a briefing in Hong Kong on Thursday. “It could trigger a reallocation of global reserves portfolios.”
My added comment:
Please note that every time we see an article on this issue it points out that "People's Bank of China officials have called for the IMF to include the Yuan in its reserve basket". This is an extremely important goal for China. China may be organizing new banks to have alternative ways to increase its influence on the global monetary system, but they are still fully engaged at the IMF. This fall we will find out if China is going to get more say at the IMF or not. Right now, it seems very likely the Yuan will be added to the SDR basket. The fate of the 2010 IMF reforms giving China more voting power is less certain.

Another thing to note is that the changeover to the Yuan is predicted to take several years with the year 2020 specifically mentioned. 

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