On June 14 the IMF sent a team of analysts to Beijing to begin the process of determining whether the Chinese Yuan will become part of the Special Drawing Rights (SDR) basket of currencies. Already progressing quickly as a globally used trade currency since 2009, the Yuan or RMB is now looking to make its mark in one of the most important financial institutions in the West.
Since December of last year, the Chinese Yuan has become one of the top five used currencies for international trade, with more than 23 major economies creating swap lines to facilitate its use. And at the same time that the dollar is losing market share in global trade, the RMB has jumped more than 4% in just the past 12 months.
A team from the International Monetary Fund has arrived in Beijing to assess whether the yuan should be included in the Special Drawing Rights basket, according to a statement from the Washington-based organization.
Data collection and analysis for this year’s review of the SDR basket has started, and the IMF team will discuss technical issues with Chinese officials, according to the statement.
IMF Deputy Managing Director Zhu Min said earlier that the preliminary results for the technical discussion will be released as early as July.
The SDR basket, which was created in 1969, is reviewed every five years. It is an international reserve asset that currently includes the US dollar, Japanese yen, British pound and the euro. The possible addition of the yuan is a major issue for this year’s assessment. – China Daily
Many analysts have been asking why China would look to be a part of the IMF and SDR considering the fact that they have constructed their own alternate institutions to compete against the IMF and World Bank. However, in recent interviews by statistician and analyst Dr. Jim Willie, the purpose behind China’s push to include the Yuan in the SDR is more about opening the way for the Far East economy to expand their bond issuance, and thus collateralize the RMB to achieve even greater scope in global trade.
China is almost assured of becoming the next currency to join the SDR, as they have not only been the primary supporters of the IMF over the past two years, but have an immense reserve of physical gold that could easily justify their currency as stable and sought after. And since China is also leading the world in opening free trade regional pacts through their Belt and Road (Silk Road) initiatives, it would be unlikely that the IMF would lock out China from the SDR, especially considering that use of the RMB will soon encompass more than half of the global population through future bi-lateral trade.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.