With reports now circulating that the IMF is ready to add the yuan into the SDR currency basket, some are wondering why there is no significant market reaction. This CNBC article explains why. We have noted here that while this change is important to the global monetary system, it was not likely to create any sudden impact as the change is planned to take place gradually. Below are some quotes from the CNBC article.
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"The renminbi's status as a global reserve currency may be effectively guaranteed following formal backing by International Monetary Fund (IMF) staff, according to economists, but traders have yet to be convinced.
The yuan fell to an intra-day low of 6.379 per dollar on Monday, weaker than the central bank's midpoint rate of 6.375 and the previous session's closing quote of 6.374, as Friday's news failed to spark buying, surprising several analysts who expected short-term bullishness.
Last week, IMF staff members issued a paper to the Executive Board stating that the renminbi, also known as the yuan, met requirements to be a "freely usable" currency, proposing it should be included in the organization's Special Drawing Rights (SDR) basket as a fifth currency, alongside the U.S. dollar, euro, British pound and Japanese yen.
Chinese authorities have addressed all remaining operational issues identified in an initial analysis in July, said IMF director Christine Lagarde in a statement. The organization's final decision on the issue is expected on November 30.
Friday's positive remarks makes yuan inclusion more than an 80 percent likely, according to United Overseas Bank. Other banks issued equally bullish remarks, with TD Securities calling SDR acceptance "a done deal."
So, why aren't markets cheering?"
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