Coming of Age: China’s Yuan To Join SDR Basket As IMF Reserve Currency

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Published : November 27th, 2015
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Category : Market Analysis

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?

24hGold - Coming of Age: China...
A bank teller counts out 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”.

It should be noted that inclusion in the SDR is very different from increasing China’s share in the IMF quota, which has also long been pending. The IMF’s quota represents the member country’s voice in the decision making at the IMF and is closely linked to the country’s influence over the IMF.

If approved, as expected, at a November 30 board meeting, it would mark the first significant change to the IMF’s “Special Drawing Rights” (SDR) basket since the inclusion of the euro at its creation in 1999.

In a statement, the People’s Bank of China thanked the IMF for the recommendation and said it was “an acknowledgment of the progress in China’s recent economic development, reform and opening up”.

Sources:

IMF’s Addition Of China’s Renminbi To SDR Basket Won’t Make Much Difference – Forbes
Is RMB in the SDR a blessing for China? – China Spectator

DAILY PRICESToday’s Gold Prices: USD 1064.65, EUR 1005.79 and GBP 707.73 per ounce.
Yesterday’s Gold Prices: USD 1070.50, EUR 1009.41 and GBP 710.30 per ounce.
(LBMA AM)

24hGold - Coming of Age: China...

Silver in USD – 1 Month

US markets were closed yesterday due to the Thanksgiving holiday.

Must-read guides to international bullion storage:

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Download Essential Guide to Gold Storage in Switzerland

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Download Essential Guide to Gold Storage in Singapore

Data and Statistics for these countries : China | Singapore | All
Gold and Silver Prices for these countries : China | Singapore | All
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Mark O'Byrne is executive and research director of www.GoldCore.com which he founded in 2003. GoldCore have become one of the leading gold brokers in the world and have over 4,000 clients in over 40 countries and with over $200 million in assets under management and storage.We offer mass affluent, HNW, UHNW and institutional investors including family offices, gold, silver, platinum and palladium bullion in London, Zurich, Singapore, Hong Kong, Dubai and Perth.
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