Yuan finally joins the IMF’s SDR basket today.

Say the PBOC:

“The inclusion into the SDR is a milestone in the internationalization of the renminbi, and is an affirmation of the success of China’s economic development and results of the reform and opening up of the financial sector”

The IMF announced the inclusion last year so the move is no surprise to markets.
On Thursday US Treasury Sec Jack Lew had this to say:

“The new IMF status recognizes the “enormous” change in China in the last 10 years that had made the yuan more open, but Beijing still had work to do to make its currency and its economy more market-driven.

Being part of the SDR basket at the IMF is quite a ways away from being a global reserve currency.”

Including the yuan in the basket is a significant step in China’s financial reform programme and will limit its ability to manipulate so we wait to see the real impact given that the yuan is yet a fully traded currency.

The new weights of an SDR is now:
  • USD: 41.73%
  • EUR: 30.93%
  • Yuan: 10.92%
  • JPY: 8.33%
  • GBP:  8.09%
The old weights in the basket were:
  • USd 41.9%
  • EUR: 37.4%
  • JPY 9.4%
  • GBP 11.3%

IMF Adds Chinese Renminbi to Special Drawing Rights Basket

IMF News

September 30, 2016
• Renminbi joins U.S. dollar, euro, yen, and British pound in SDR basket
• Change represents important milestone for IMF, SDR, and China
• Move recognizes and reinforces China’s continuing reform progress

Effective October 1, the IMF is adding the Chinese renminbi (RMB) to the basket of currencies that make up the Special Drawing Right, or SDR.

The SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves. The IMF’s Executive Board agreed to change the SDR’s basket currency composition in November 2015, and the decision now enters into force after a period of transition. The RMB joins the SDR basket in addition to the previously included four currencies—the U.S. dollar, the euro, the Japanese yen, and the British pound (see chart).

In an interview, Siddharth Tiwari (Director of the IMF’s Strategy, Policy, and Review Department) and Andrew Tweedie (Director of the IMF’s Finance Department) explain why this change took place and its significance for the IMF, the SDR, China, and the international monetary system as a whole.

IMF News: What does the renminbi’s inclusion in the SDR basket mean for China?

Tiwari : The RMB’s inclusion is an important milestone in the integration of the Chinese economy into the global financial system. The IMF’s determination that the RMB is freely usable reflects China’s expanding role in global trade and the substantial increase in the international use and trading of the renminbi. It also recognizes the progress made in reforms to China’s monetary, foreign exchange, and financial systems and acknowledges the advances made in liberalizing, integrating, and improving the infrastructure of its financial markets. We expect that the inclusion of the RMB in the SDR basket will further support the already increasing use and trading of the RMB internationally.

In addition, while data disclosure is not a formal criterion for a currency’s inclusion in the SDR basket, issuers of reserve currencies generally meet high transparency standards. The Chinese authorities have recently taken welcome steps to increase data disclosure and enhance their commitment to multilateral data initiatives; for instance, reporting the currency composition of reserves to the IMF. Also, the Chinese authorities continue to work with the Bank for International Settlements on their reporting of the Chinese banking sector statistics. These developments will lead to increased acceptance of the RMB among official holders of foreign exchange reserves.

IMF News: How is the renminbi’s inclusion expected to impact the international monetary system?

Tiwari : There are several benefits to the international monetary system.
First, the inclusion of the RMB in the SDR basket consolidates the RMB’s internationalization process. The internationalization of a currency imposes strong requirements on its markets and institutions.

Experience shows that some of these elements include developing deep and liquid financial markets, achieving a certain degree of openness of the capital account, delivering predictable macroeconomic outcomes, strong and credible institutions, and securing the integrity of the markets—for example, by putting in place a reliable rule of law. Thus, consolidating and further strengthening the RMB internationalization process will help strengthen the Chinese economy, and therefore the global economy.

Second, the inclusion of the RMB in the SDR basket enhances the attractiveness of the RMB as an international reserve asset. This will help with the diversification of global reserve assets.