Monday, November 30, 2015

Bloomberg: Drama Over Makeup of new SDR Currency Basket Continues

It seems the latest drama in the SDR basket remake is just how much weight will be given to the yuan once it is added. We recently ran this interesting article which speculated the yuan might be given less weight than previously thought and that the US dollar share might actually go up. Bloomber runs this article which adds to the intrigue. Below are some quotes.


"The yuan fell toward a three-month low amid concern China will win a smaller weighting in the IMF’s Special Drawing Rights than some analysts predict.
While International Monetary Fund staff estimate a weighting of 14 to 16 percent, the market consensus is for 10 percent because of the currency’s limited usability, according to Mizuho Bank Ltd. Anything less than that will spark a decline, said Ken Cheung, a Hong Kong-based strategist at the Japanese lender. Many observers are still going by the IMF projection, said Sue Trinh, head of Asia foreign-exchange strategy at Royal Bank of Canada.
We could see knee-jerk selling if a weight of 10 percent is announced,” said Hong Kong-based Trinh. “I wouldn’t be surprised if the offshore yuan broke beyond 6.45 a dollar and proceeded to test 6.50 immediately following the SDR announcement, or in one to two weeks. The onshore yuan is entirely dependent on the daily fixing, but it will probably test the weaker end of the trading band.”

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