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

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?

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”.

Read more on the GoldCore.com blog

DAILY PRICES

Today’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)

Silver in USD – 1 Month

US markets were closed yesterday due to the Thanksgiving holiday.
IMPORTANT NEWS

Gold close to lowest in nearly six years on stronger dollar – Reuters
Gold flat as US celebrates – Proactive Investors
Indian gold demand seen falling to 8-year low in festive quarter – Reuters
Gold Trades Sideways in Asia – WSJ
Gold Heads for Sixth Weekly Decline as Fed Rate Decision Looms – Bloomberg

IMPORTANT ANALYSIS

The falls and rises in Chinese gold imports – Sharps Pixley
Chinese stocks plunge as regulators widen probe into market – The Telegraph
RBI to make gold monetisation scheme simpler to help it take off – Economic Times
As gold, platinum prices fall, investors flee precious metal funds – CNBC
The dark side of cash – MoneyWeek

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