China's yuan set for IMF reserve status

Just the US dollar, the euro, Japan's yen and the British pound are currently part of this select band.
Earlier this month, IMF head Christine Lagarde backed the yuan's inclusion.
If the decision is made, the yuan is likely to become part of that basket next year, experts said.
What this means is the yuan will now make up part of the IMF's Special Drawing Rights (SDR) - an asset created by the IMF which serves almost as a currency.

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This is big news, and kind of a blessing in disguise for those who want China to play by the rules. With inclusion of the Yuan, the IMF's special drawing rights basket will be composed of:



China, a known currency manipulator, will now be under far more scrutiny in the event that the Bank of China intervenes to the extent they have in the past. While i doubt this will have much (if any) impact on the overall global reserve market, as the dollar continues to strengthen, China doesn't have to be the place capital goes to die. Chinese assets are sure to get a boost from this vote of global confidence.

The rest of the article can be found here.

IMF Release

IMF SDR review sheet

I am not as optimistic as you are. To have a better position in the basket of currencies as reserve status, I suspect that China would have to agree to financial and monetary policy reforms they may not be willing to adhere to. So any "Special Drawing Rights" would be diminished by the level of yuan currency used as actual reserve status (as in the next step after its inclusion as a possibility in these rights.)

OrphanSlug said:

So any "Special Drawing Rights" would be diminished by the level of yuan currency used as actual reserve status (as in the next step after its inclusion as a possibility in these rights.)

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Can you expand on this point?

This makes almost no difference in the economy.

This is basically accounting and gives China no major advantage or disadvantage.

MTAtech said:

This makes almost no difference in the economy.

This is basically accounting and gives China no major advantage or disadvantage.

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Of course it's not a zero-sum situation. It does however put pressure on China to develop.

Kushinator said:

Can you expand on this point?

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The basket of currencies used as reserves (as in the actual amount of each contributing nation's currency in that basket) impacts the value of the Special Drawing Rights (which is defined as an "international reserve asset.")

While it is an honor to be included in that basket of currencies used as reserve status the *actual amount* used in conjunction with other nations determines the overall value of Special Drawing Rights. Basically, to use or list the "asset" for whatever reason.

Since this is an IMF controlled value, by default of calculations on currency "floating exchange rates," it stands to reason that China would have to agree to monetary and financial policy reforms for the yuan to be used more in that basket in comparison to the US Dollar, Euro, Pound, Yen, etc.

It is important to note that Special Drawing Rights are neither a currency themselves or even an active claim on currency. Just a potential claim ("asset" depending on accounting) on the usable currencies of IMF members, which makes a nation being included in the basket of reserves having additional inherent value against other currencies without that same status.

Being able to be one of those influencers (like the US Dollar, or Euro, or others) means agreeing to IMF terms on currency controls. Something China traditionally does not like to do (and to be honest, neither does the Fed but we get away with it.) So the vote is out on how much of the yuan actually ends up in the basket of currencies used as reserves. Might start out as a low percentage of the whole, and eventually get up to the level that the Euro enjoys today based on how much China agrees to play by outside rules.