from The Daily Bell:
IMF signals renminbi set for inclusion in SDR basket … International Monetary Fund representatives have told China that the renminbi is likely to join the fund’s special drawing rights (SDR) basket of reserve currencies … The renminbi’s inclusion in the SDR basket will help spur China to accelerate financial reforms and economic opening up and catalyze yuan liberalization, according to the report. – WantChinaTimes
Dominant Social Theme: It is important for China to participate in the IMF’s SDR basket. So very important.
Free-Market Analysis: Placing the yuan in the IMF’s currency basket is bound to happen sooner or later. But in the past few weeks, the prospect has been much in the news again because the IMF has brought up the subject once more.
(Note: We will refer to the Chinese currency in this article as the yuan. The renminbi is the name of the Chinese currency in aggregate, but the yuan is the name of the actual unit.)
It is regularly speculated that the slow-growing basket of currencies that support the IMF’s SDRs is a global currency in waiting and that at some point national currencies will be supplanted by SDRs in some form or other. That’s the “conspiracy” theory, anyway. (Of course, sometimes conspiracies prove to be true.)
But let’s try to understand a little more about SDRs. Here’s some more from the article excerpted above:
The IMF reviews the SDR basket valuation method every five years to ensure that it reflects the relative importance of major currencies in the world’s trading and financial systems, with the aim of enhancing the attractiveness of the SDR as a reserve asset.
The current criteria for inclusion were adopted by the IMF board in 2000. They established that the SDR basket comprises the four currencies that are issued by members or currency unions whose exports of goods and services had the largest value over a five-year period, and have been determined by the IMF to be “freely usable” — to date, this includes the US dollar, the euro, the British pound and the Japanese yen.
The article goes on to tell us that the yuan ought to be included by virtue of its size since China is the world’s largest exporter of goods at this time. The sticking point in the past has been whether the yuan is freely usable.
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