A Brief Analysis Of The Political Symbolic Significance Of RMB's Incorporation Into SDR?

Should China's RMB be included in the SDR basket of currencies? This problem seems to be a purely economic problem from a distance, but it is more symbolic in the near future.

For some enthusiasts, the staff of the International Monetary Fund (IMF) suggested that the RMB join the US dollar, the euro, the yen and the pound, and become the fifth currencies that constitute the quasi currency of SDR, which will boost the renminbi's status as the global reserve asset.

The truth is less dramatic.

The view of IMF staff (which is very likely to be approved by its Council) is that the renminbi is "freely available" and therefore can be added to SDR, which is very important in the statement sense.

The renminbi will gain a new reputation from an institution which is often in a tight relationship.

But it can not replace Beijing's continued opening of financial markets and capital flows to promote the use of RMB outside China.

If China wants the renminbi to be widely used as a kind of

It needs to be prepared to create a large amount of Renminbi (like the United States creates a large number of dollars) and allow it to flow offshore.

This is a hindrance to Beijing's strict control over capital flows and its apparent fear of big balance of payments deficits.

The political significance of this decision exceeds its economic importance.

By deciding that the renminbi is freely available, IMF will undoubtedly be on the side of certain elements in the Chinese system (especially the people's Bank of China), who consistently and rightly advocate that Beijing should liberalize capital flows and exchange rates.

Whether this decision can maintain the pressure to further deregulate the Chinese government or make it content with the status quo, people still need to wait and see, but at least the signal seems to indicate that Beijing is moving in the right direction.

However, sending signals is also the most significant part of this decision.

Ultimately, the global use of certain currencies does not depend on the Bureaucratic decisions made at the supranational level, but on the credibility of the authorities concerned in establishing monetary policy and monetary policy, depending on the high availability of the relevant currencies.

The members of IMF blew up their new SDR assets by nearly $300 billion in 2009 to boost official liquidity, calling it part of the official response to the global financial crisis.

However, such units are still rarely used, and official SDR valuation assets are still required to be exchanged for their constituent currencies.

Therefore,

For intervention purposes, they are useless.

To allow a currency to be widely held by official reserves, it is included.

Currency basket is neither a necessary nor a sufficient condition.

Before SDR was reformed in 1981, its members included 16 currencies, including some seemingly unthinkable and unobvious global reserve assets, such as rial in Iran.

On the contrary, although the Swiss franc is not a member of today's SDR, it is widely held as an official means of storage.

At the very least, the inclusion of RMB in the SDR will boost China's system to promote openness and promote China's further integration into the global economic governance structure.

However, anyone who looks forward to this decision as a turning point, whether for international use of the Renminbi or for the credibility of SDR itself, is likely to be disappointed.