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

GoldCore's picture

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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Latitude25's picture

The SDR is coming all right.  Here's a job posting with the wages paid in SDR.

http://www.ppa.org.fj/wp-content/uploads/2015/09/070915PIFS-Advert-Senio...

Just don't ask me what kind of job it is though.  It makes no sense to me. The exchange rate is interesting though.

dlmaniac's picture

How many times has China devalued their RMB this year alone? Those who owned RMB were robbed each time. Despite the hype it's just another paper currency as dubious as US$. The way their stock market crashes there's more devaluation on the way. It's not safer than anyone else' currency, folks. The hype is dead.

roddy6667's picture

It's all part of a well thought out plan. The goal is 5:1 RMB:USD. That keeps China's factories pumping out cheap goods that Americans buy with dollars. China uses the dollars to buy Treasuries. later they swap these treasuries to buy gold and other cheap commodities.

America has no plan.

tarabel's picture

 

 

Well, of course Lagarde et al voted to include the yuan into the basket of currencies.

All of the bribes came in that currency and they need them to be fully convertible in order for them to be properly fungible. It's not like they were going to take the IMF Batplane to Shanghai and go shopping for fake iPhones.

But, to some degree, this is a Hillary moment. At this point, what does it matter? I think it is a move that is irrelevant to the flow of financial lava bubbling up around our feet.

nmewn's picture

The "democratization" of the NWO banking cabals continues apace.

What-Could-Possibly-Go-Wrong? ;-)

JIMSJOE2's picture

The vote to include the yuan in the SDR basket is on November 30, 2015 but there is more to the vote than just this. All IMF members, (except the US), voted and each country's governments approved the IMF quota changes in 2010 and the SDR to be used for settlement of international trade, replaceing the dollar. The US still has not approved it. The IMF went to Plan B where each individual change will be voted on separately thus reducing the quota where before the US had the veto power to block the single packages of changes but under the IMF rules, they do not have the same quota separtely.  Hence the US cannot do anything about the up coming changes. The US has not funded their share to the IMF for years anyway. China and the majority of the IMF menbers have been pushing for the SDR to replace the dollar in international trade for a number of years so transaction cost would be lower. In addition with the US asserting legal control over every individual, entity and country just because the dollar is used has convinced most of the world to expedite the process. Take for example the billions in fines that the French and Swiss banks had to pay to the US. Also the indictments of the FIFA officials because the dollar was used as bribes. All of these changes were to be implemented on 1/1/2016 with the SDR being used to settle trades and the dollar to be phased out but the US ask for a 9 month extension before the changes to take place. What these changes means is that all countries will exchange their dollars and US Treasuries used to settle trade to the IMF and they will receive in SDRs. The IMF will be the largest holder of US treasuries on the planet making the SDR partially backed by US treasuries. The member countries that are part of the "New Silk Road" projects, (spearheaded by China and Russia), are expected to keep forging ahead with trade settlement in their own currencies and using the SDR only for trade settlement with those countries that are not a part of the trading block. When fully implemented the US will not be able to have huge deficits and will put a stop to the US hegemony!

Interesting times ahead!!

conscious being's picture

JimsJoes2 - thanks for your thoughts on this. You should have written the article.

the grateful unemployed's picture

i assume that SDRs will ride on top of the competing currencies, nor OR but AND, which means a massive explosion of monetary expansion. (hey why else would they do it?) the means test for SDR membership includes a gold reserve, and the Chinese are acquiring theirs. i think you said it correctly the IMF will be the largest holder of US treasury on the planet (BINGO)

Kayman's picture

IMF   "the SDR basket consists of the euro, Japanese yen, pound sterling, and U.S. dollar."

None of the currencies above are pegged to the USD- except the Yuan. China still can't run with the big dogs unless it lets the yuan float. Then all the Chinese gold and FX will be needed as the Yuan collapses.


conscious being's picture

The old naked-short-via-the-printing-press routine. If Tsun Tsu wrote anything about printing presses, he probably said something like 'First you must destroy the currency being printed.' I'm sure the Chinese can see that one coming.

SILVERGEDDON's picture

Wi Fuk Yu Nao.

Ha ha ha, velly funny.

Wi awn USA.

Jkweb007's picture

This is a very well planned out move by China. It first needs the RMB Recognized officially and the second move will to announce how much actual gold it holds. I some what agree about the bond thing but not for the U.S. The U.S. is over 100% of gdp in debt and China like 40% if the RMB is backed by gold whos bond would you buy. The U.S. would be forced to state the official accounted amount of gold holding which i doubt has the amount stated plus the LBMA and COMEX would also be shut down at tnis point. Gold would take on the real valuation and many central banks will be forced to listen to china or go under.

JRev's picture

You're living in a fantasy land if you don't recognize that the return to a partial gold standard and China's admission into the SDR is anything but transnational collaboration at the highest levels of monetary policy. 

http://statelesshomesteading.com/masters-of-metal-china-the-rothschild-f...

Chatham House and the "Royal" Institute for International Affairs have been calling for the inclusion of exactly these two currencies (gold and the RMB) into the SDR for years now. No, the PBOC (of which Zhou Xiaochuan, its head, sits on the Board of Directors for none other than the BIS) and the Anglo-American Establishment have exactly the same policy recommendations for "reforming" the international monetary system. Probably because they're all on the same team.

Spend more time reading the (admittedly dry and boring) policy papers from the PBOC, Chatham House, and the like, and less listening to bedtime fairytales told by alt-media blowhards.

https://www.chathamhouse.org/sites/files/chathamhouse/field/field_docume...

https://www.chathamhouse.org/sites/files/chathamhouse/field/field_docume...

https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/In...

http://www.bis.org/review/r090402c.pdf

Jack Oliver's picture

The thing is that China are IN and change will come - Of course they need a seat on the BIS board - How can they bring about significant change otherwise ??  Investors will be flocking to buy Chinese bonds and not the worthless USTB's issued by the US !This IS a big deal ! Fed money printing undermines China's export economy and their national savings - Quite frankly they are SICK of it ! 

the grateful unemployed's picture

i read Rickards on this too.its a big deal really because bonds will issued in SDRs, and that will allow the main holders to expand their monetary base which allows for more deficit spending, military and technology. i see this as a real story of haves and have-nots, the wealth gap will apply to nations, and the Chinese dont want to be left out. the US has only one seat but it accounts for most of the voting rights, and even if China is seated it wont change.