It’s time for IMF to allow yuan into SDR basket
Beijing has adopted policies that support the candidacy of its currency
Later this year, when the International Monetary Fund (IMF) reviews the composition of the special drawing rights (SDR), a basket of currencies used as an account unit at the IMF, the right decision would be to incorporate the yuan in that select group.
Speaking at a joint press conference with President Xi Jinping on September 25, US President Barack Obama fully supported a greater role for China at the IMF while, in turn, Xi expressed appreciation for US support for “including the [yuan] into the IMF special drawing rights when certain standards of the IMF are met.”
The IMF-prescribed standards that apply to component currencies of the SDR are “the export criterion” and “the freely usable criterion”.
The former refers to currencies from countries or monetary unions “with the largest value of exports of goods and services during the five-year period ending 12 months before the effective date of the revision”. The yuan clearly falls into that category given China’s position in international trade.
The yuan overtook the Japanese yen, already in the SDR basket, to become the fourth-most-used world payment currency in August
As for being freely usable, the IMF states a prospective SDR component currency must be “widely used to make payments for international transactions” and be “widely traded in the principal exchange markets”.