SDR basket needs the yuan

By Zhang Jingwei
0 Comment(s)Print E-mail Beijing Review, November 10, 2015
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Just a step away [By Jiao Haiyang/]

The International Monetary Fund (IMF) will decide at the end of November whether to include the yuan in the Special Drawing Rights (SDR) basket. The market acknowledges that the yuan is capable of joining the currency basket. Once the IMF approves the inclusion, demand for yuan-nominated assets will be stimulated.

The SDR attracts unprecedented attention from the Chinese because of the yuan's increasing use in the international market. The SDR includes all the major world currencies--the U.S. dollar, euro, pound and Japanese yen--and represents the soft power of the IMF and a structure dominated by the Western world.

After the financial crisis of 2008 had a severe impact on the world economy, the Group of Seven (G7) failed in its rescue attempts and had to cooperate with emerging markets, turning it into the Group of 20 (G20). As the world's second largest economy, China acts as a main engine of the global economy. From BRICS (Brazil, Russia, India, China and South Africa) to G20, China and its currency play an increasingly important and responsible role.

In 2010, the IMF started quota reform and reviewed new currency weights for the SDR valuation basket. At that time, the world economy was in deep recession, so it was also a time when the SDR basket urgently needed the yuan. The reform and new currency weights were supported by most countries but blocked by the United States.

As the U.S. economy recovered, the White House was still unenthusiastic about pushing Congress to pass the IMF's reform plan. A decision on the yuan's inclusion in the SDR basket was then delayed to November of this year.

The good news is that the IMF has declared that the yuan has a fair valuation. With the establishment of the Asian Infrastructure Investment Bank, China's contribution to the global economy has been accepted by Europe, and major European countries are clearly in favor of the yuan's inclusion to the SDR basket.

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