from Gold Core:
Christine Lagarde and the IMF Executive Board recently announced their intention to include the Chinese Renminbi (RMB) in the Special Drawing Rights’ (SDR) valuation formula. This would bring the Chinese currency into an exclusive group – alongside the US dollar, the Euro, the British pound and the Japanese yen – of 5 global currencies that make up the IMF’s own reserve currency.
So, what will this promotion really mean for the Yuan?
In market terms, not a whole lot it would seem.
The inclusion of the RMB in the SDR basket will not significantly increase demand for the currency. It is simply an acknowledgment that the Chinese currency has fulfilled two of the IMF criteria for inclusion; that it was “widely used” and that it was “freely usable”.
“The reason for there to be little effect is just that reserve currencies, SDRs, even central bank foreign exchange reserves, just aren’t all that important these days. There’ll be a little more demand for yuan than there otherwise would have been…” Tim Worstall, Forbes
The decision is, however, a significant PR win for the Chinese leadership, both domestically and internationally, who have made their inclusion in the SDR one of their biggest fiscal priorities of the next 5 years. As Masahiko Takeda, writing for Chinese Spectator put it:
“It is clearly a symbolic victory in China’s efforts to raise its status in the international financial community, commensurate with its growing importance in the global economy”.
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