Over the last few years, the international community have been actively discussing the probability of making the Chinese Yuan another global reserve currency by adding it to the IMF’s basket of reserve currencies. It should be noted that the MF welcomes China’s efforts to restructure its financial system. Still, the Renminbi is said to be lagging behind its rivals in a number of key aspects, which are taken into account by the IMF when it comes to making a certain currency a reserve one.
At the same time, the International Monetary Fund seems to see no more obstacle on the way to making the Renminbi another reserve currency. This month, the IMF is planning to release another report. Some experts believe that this report is going to say that there are only several technical issues that need to be resolved in order to add the Chinese Yuan to the currency basket. This means that the Renminbi is going to be included in the SDR basket. The final decision will be made by the Board of Governors of the IMF.
Another major source says that there are no political deterrents to making the Renminbi a part of the SDR basket. Still, the decision is likely to be postponed till early 2016. If that’s the case, the decision will take effect in October 2016. It should be noted that the latest update of the SDR basket took place in 1999 when the common European currency was added to it.
Possible Consequences
The IMF revises its SDR basket of currencies every 5 years. This basket is used to estimate the value of the Fund’s own assets - Special Drawing Rights (SDRs). The current basket includes 4 currencies:
-The U.S. Dollar
-The British Pound
-The Japanese Yen
-The common European currency
Experts say that adding the Renminbi to the basket will have major political and economic consequences. This step is going to prove the increasing importance of the Chinese currency in the international arena. At the same time, it is going to be a signal for the world’s central banks that the Chinese Yuan can be considered a relatively reliable asset for investments.
