Reserve Currency Realized

After months of speculation, the Chinese yuan is now officially part of the International Monetary Fund’s benchmark currency basket, elevating it to reserve currency status.

Chinese monetary policy has focused on gaining entry into this elite club for the last year or so. With its membership safely secure, it raises an interesting question.

What’s next?

The IMF announced the yuan’s inclusion in the Special Drawing Rights (SDR) basket Monday. The New York Times called it a “milestone decision,” underscoring the significance of the move in terms China’s growing power on the world economic stage:When the Chinese decide to abandon their peg both for the Hong Kong dollar and the yuan – that is going to be a 10.0 on the Richter scale of economic activity. That is going to be huge. This time, it’s going to be the dollar that takes it on the chin.”

In an interview with CNBC last spring, Rickard argued that the ability of the US to block inclusion in the IMF basket was constraining Chinese monetary policy.

They want the yuan in the SDR. But the US can block it. So the US is kind of saying to China, ‘Hey, you guys need to be on your best behavior. Keep that peg. Keep that dollar-yuan peg.’”

With that axe no longer hanging over their heads, it will be interesting to see how the Chinese move forward over the next year.

Reprinted from SchiffGold.

The post Reserve Currency Realized appeared first on LewRockwell.