China’s yuan for SDR basket inclusion

  • IMF staff recommended that the currency be included in the IMF’s benchmark foreign exchange basket
  • Managing Director of the IMF Christine Lagarde also endorsed the yuan’s inclusion in the IMF’s Special Drawing Rights basket
  • A key focus of the Board review is whether the Chinese renminbi (RMB) also meets the other existing criterion, that the currency be ‘freely usable’.
  • ‘Freely usable’ is defined as being ‘widely used’ for international transactions and ‘widely traded’ in the principal foreign exchange markets. The yuan had failed to meet the ‘freely usable’ criterion the last time it was assessed, in 2010.
  • The final decision rests with the IMF’s Executive Board
  • The inclusion of the yuan in this basket has been endorsed by almost all of the major economies of the world, including Germany, Britain, France and Italy.
  • The U.S. was historically cautious about this, but recently softened its stance
  • The yuan’s inclusion in the SDR basket, when it happens, will be a great victory for China. It will mean a global economic coming of age for them, and will mean that the yuan is now a reserve currency for the world and all that entails
  • However, to meet the various requirements to achieve this, China has had to open up its closed capital account
  • Such a move of opening its capital account is ‘unambiguously a good thing’ for India.

Special drawing rights (SDR or XDR)

  • SDR are not a currency themselves, but are a certain number of rights given by the IMF to countries who, in a crisis, can draw upon any of the reserve currencies in the basket
  • They are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF).
  • The XDR was created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and the U.S. dollar
  • Their value is based on a basket of key international currencies reviewed by IMF every five years
  • In 2010, the XDR basket consists of the following four currencies: U.S. dollars ($), euro (€), pounds sterling (£), and Japanese yen (¥)
  • The weights assigned to each currency in the XDR basket are adjusted to take into account their current prominence in terms of international trade and national foreign exchange reserves
  • XDRs are allocated to countries by the IMF. Private parties do not hold or use them.
  • The amount of XDRs in existence was around XDR 21.4 billion in August 2009.

Yuan inclusion in SDR to help BRICS

  • The IMF had announced that starting from October 2016, the RMB would be included in its Special Drawing Rights (SDR) basket.
  • Analysts say that the stability of the yuan will benefit the BRICS nations. This was because the NDB was considering raising capital in Yuan-denominated bonds as a first step before it entered the bond markets of the rest of the members of BRICS grouping.
  • The NDB was approaching the BRICS bond markets so that a financial mechanism could be evolved, which would gradually reduce dependence on financial markets of developed economies and their hard currencies.
  • The World Bank and the Asian Development Bank raised funds by issuing bonds in the financial markets of the U.S., European
  • The NDB was anticipating a close relationship, for raising capital, with the Multilateral Development Banks and domestic development institutions, such as the BNDES of Brazil, VEB of Russia, and EXIM bank of India, the China Development Bank, and DBSA of South Africa.
  • The NDB has an authorised capital of 100 billion dollars, and a 50-billion-dollar initial subscribed capital, which is equally shared among the founding members. Its lending will focus on infrastructure development and sustainable projects in the emerging economies and the Global South.
Related Posts
Karnataka Current Affairs – KAS / KPSC Exams – 10th July 2017
'Startup coast' coming up in Karnataka State-of-the-art innovation centres, modern incubation set-up, tinkering labs and co-working space for startups are coming up in coastal Karnataka. This is the first project of its ...
READ MORE
BWSSB – Existing Water Supply System Scenario & Vision Document Up-To 2050
Till the year 1896, unfiltered water was supplied to Bengaluru city in the Kalyani system from a number of tanks such as Dharmambudhi, Sampangi, Ulsoor, Sankey etc., supplemented by local ...
READ MORE
Prime Minister Narendra Modi and the President of United States of America (USA) Barack Obama. (File Photo: IANS/PIB)
"Nuclear safety, terror to be in focus as PM plans three-nation tour" India's agenda at the fourth Nuclear Security Summit (NSS 2016) in Washington  Will push for a global initiative against nuclear ...
READ MORE
Rural Development – Rural Water Supply – KAS/KPSC Exams
Introduction The norm for providing potable drinking water is 55 litres per capita per day (LPCD) with a provision of 3 litres for drinking, 5 litres for cooking, 15 litres for ...
READ MORE
Karnataka Current Affairs – KAS  /KPSC Exams – 5th August 2017
BBMP: 40 Indira Canteens ready so far Inching towards its August 15 deadline, the Bruhat Bengaluru Mahanagara Palike (BBMP) is leaving no stone unturned in meeting its target of setting up ...
READ MORE
Urban Development-Construction of Houses for EWS
The Government of Karnataka has allotted 323 acres of land for the formation of Housing Projects for the members of economically weaker Section of the Society 190 Acres of land has been handed ...
READ MORE
Padma Awards: Seven Padma awardees from Karnataka – Complete List
Padma Awards are the highest civilian Awards of the country conferred in three categories Padma Vibhushan, Padma Bhushan and Padma Shri. This year, President of India Pranab Mukherjee approved conferment of ...
READ MORE
Karnataka Current Affairs – KAS / KPSC Exams – 9th July 2017
4 projects get STAMP of approval Four entrepreneurs who pitched solutions to improve the first- and last-mile connectivity to Namma Metro stations in Bengaluru will soon get a chance to execute ...
READ MORE
Karnataka: Tipu’s armoury shifting starts smooth
The project to move Tipu Sultan’s armoury has crossed a critical phase. The armoury is being moved 100 metres to make way for a railway track. The spectacular engineering effort is ...
READ MORE
All you need to know about HYBRID ANNUITY MODEL (HAM)
The union government approved the hybrid annuity model for building national highways, paving the way for construction of 28 projects worth Rs. 36,000 crore this fiscal year. The move will speed ...
READ MORE
Karnataka Current Affairs – KAS / KPSC Exams
BWSSB – Existing Water Supply System Scenario &
All about nuclear security summit
Rural Development – Rural Water Supply – KAS/KPSC
Karnataka Current Affairs – KAS /KPSC Exams
Urban Development-Construction of Houses for EWS
Padma Awards: Seven Padma awardees from Karnataka –
Karnataka Current Affairs – KAS / KPSC Exams
Karnataka: Tipu’s armoury shifting starts smooth
All you need to know about HYBRID ANNUITY