South China Morning Post: Why China's Yuan Deserves SDR Recognition

With the IMF decision on whether to add the Yuan to the SDR currency basket coming up later this year, we will see more attention to this topic start showing up. Here we have a recent article in the South China Morning Post calling once again on the IMF to add the Yuan to the currency basket. Below are some quotes followed by some added comments.
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"Since Deng Xiaoping embarked on market reforms in the late 1970s, China has evolved from a poor, closed economy to become first the factory of the world and now a country on the cusp of significant economic opening.

This begs the question of how its currency will integrate into the global financial system.

It is a matter of when, not if, the yuan will be included in the International Monetary Fund's special drawing rights currency basket. With the five-yearly SDR review due later this year, now is a good time.

The yuan's inclusion would cement its rising reserve-currency status and accelerate investment in the currency. To qualify, it must be "freely usable", although not necessarily "fully convertible".

The Japanese yen became fully convertible only in 1980 - two years after the IMF determined it to be freely usable.

Sceptics may focus on how far China still has to travel, but the IMF should instead look at how far it has come."

. . . . 

"A steady, managed emergence into the global economy is good not only for China but - given the country's size and global influence - for the rest of the world."

. . . .  

"Right now, the IMF is instrumental to China's further opening - a potential catalyst for its future liberalisation and next phase of economic and financial development."

Click here to read the full article

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My added comments:

When you read these articles written from China's point of view calling on the IMF to add the Yuan into the currency basket, a couple of points pop up every time. 

1) The process of increasing the reserve status of the Yuan/Renminbi in the world is always talked about as a slow, steady process. There is no indication of any kind that a sudden effort to replace the US dollar by backing the Yuan with gold is being considered by China.

2) It is clear that China is not yet accepted at the IMF on the same terms as the other major powers and badly wants that level of recognition. There is nothing that indicates China is in position to "take over" the IMF as you see some claiming.

As time goes by it becomes clearer and clearer that global monetary system change is going to take place at a slow pace unless we get another major financial crisis. Absent such a crisis, don't expect any major changes to take place rapidly.


Added note: The South China Morning Post also runs this new article providing some historical background to China's decades long effort to gain more influence at the IMF.  Here are the lead paragraphs in this article:

"China's bid to play a bigger role in the management of the global financial system has been in train since it helped draw up the rules that created the International Monetary Fund in 1944, according to a report published today by OMFIF, the network linking central banks and sovereign wealth funds around the world.

The report throws new light on the original discussions that set voting power quotas at the IMF and China's key role in them, striking many parallels with Beijing's current efforts to gain a bigger say at the Washington-based multilateral lender, the rules it sets to manage global finance and in the world's system of reserve currencies."