RMB Is Included In SDR "Face Is Bigger Than Inside".

Lagarde, chairman of the International Monetary Fund (IMF), announced on Monday (November 30th) that the renminbi will be included in the basket of IMF special drawing rights (SDR). The resolution will take effect in October 1, 2016.

This clears up the remaining obstacles for the internationalization of RMB.

The basket may help IMF improve its position in China, which replaced Japan in 2010 as the second largest economy in the world.

According to the 2010 reform plan, China and other emerging economies could have increased their representation in IMF, but the US Congress has not yet approved the plan.

With the collapse of the Bretton Woods system,

In 1969, SDR was created to enhance global liquidity.

Technically, SDR is not a currency, but it gives IMF member states holding SDR the right to obtain any currency in basket to meet the needs of balance of payments.

As of September, a total of $280 billion of SDR has been created and allocated to Member States, compared with $11 trillion and 300 billion in global foreign exchange reserves.

The United States insisted that China must push ahead with financial reform to support the RMB basket. However, its position softened in September and announced that the US would support it if China could prove that it was in line with IMF's technical standards.

Earlier this year, IMF issued a report to the executive board that the renminbi had fallen behind key global targets, such as official reserves, bond holdings and foreign exchange pactions.

After the staff's recommendations, the Executive Board will be postponed for nine months until the end of September 2016 to adjust the composition of the SDR basket.

Following the report, the people's Bank of China and the Ministry of Finance issued various measures to meet the requirements of IMF, including reviewing the central parity mechanism of exchange rates, allowing foreign central banks to trade all offshore products and issuing three month bonds to improve the short-term yield curve.

IMF said it will continue to monitor the standard compliance of the SDR five major countries, with the RMB trading volume increasing significantly in the three major trading time zones.

IMF said that the weight of RMB in SDR is 10.92%, the weight of US dollar in SDR is 41.73%, the weight of euro in SDR is 30.93%, Japanese yen is 8.33%, sterling is 8.09%.

With the recognition of IMF, the RMB that has been working hard for internationalization over the past ten years is a major milestone event.

The approval of RMB to join the SDR may enable more countries to safely add renminbi to their foreign exchange reserves.

At the time of the last assessment of the SDR basket in 2010, IMF refused to allow the renminbi to be free of use. The political environment at that time was not conducive to China's low trade settlement, and it was one-way, making China's huge foreign exchange reserves under greater upward pressure.

IMF staff thought the renminbi was undervalued, and the real effective exchange rate was depreciating at that time.

IMF's recent fourth Article (Article IV) evaluation report shows that the appreciation of the real effective exchange rate of RMB is consistent with the fundamentals, but the appreciation is not enough to eliminate it.

"(5%-10%) status.

In order to satisfy IMF's requirement for SDR currency to be "freely available", the renminbi does not need to achieve full convertibility.

According to the thirtieth article of the IMF agreement, the renminbi can only meet the requirements of "being widely used in the payment of international pactions" and "being widely traded in major foreign exchange markets".

At that time, IMF also had some leeway in assessing usability.

The IMF Executive Board said in 2010 that it should not interpret the indicators mechanically. Finally, it should rely on judgement to make decisions in the framework of the IMF agreement's definition of freely available currencies.

Nowadays, the availability of RMB has been greatly improved, and the political environment of IMF is more favorable to China.

It is believed that more than 30 central banks have incorporated Renminbi into their foreign exchange reserve currency; China has also expanded the floating range of RMB pactions and the valuation of onshore renminbi has risen.

The question now is not whether the renminbi is an international reserve currency, but how much it plays the role of the world's major currencies.

The face value of the RMB settlement options in the US Securities Depository Clearing Corp (DTCC) weekly is usually comparable to that of the yen.

On the other hand, the daily turnover of RMB in the foreign exchange market has not yet reached its due level.

Considering that China is the second largest economy in the world and remains strong in many developed countries, China now has greater influence in international decision-making.

Moreover, China's economic influence is likely to expand. It is an important gesture to give RMB SDR basket currency status at this juncture.

Minsheng securities, a leading macroeconomic analyst team led by Qing you, said in the report that the renminbi was included.

In the short term, the basket of special drawing rights of the IMF is greater than that of the inside.

Early introduction of RMB

The market has been overly price in, which is much harder than expected. The renminbi will fluctuate weakly in the short run.

The renminbi will not depreciate sharply. After all, what SDR needs is stability and firmness, not "capricious" RMB.

In 2016, the depreciation of RMB or reproduction once was once more likely to be stable.

The inclusion of SDR will not immediately increase the demand for Renminbi as a reserve asset. SDR, as a credit endorsement given by IMF, has increased the credibility of the renminbi in the long run, but has not promoted the global mechanism of spot matching RMB.

RMB's accession to the SDR will not immediately cause all countries to increase their renminbi reserves.

SDR is not a currency or a creditor's right, it is a kind of convertible right, that is, the right to withdraw money in any basket of money at any time, and it is mainly used for official settlement between IMF and Member States.

This right does not require the holder to collect Renminbi in proportion, nor does it have to exchange Renminbi for free currency.

The US dollar is still the rational choice of most holders. The ratio of RMB to SDR is not equal to the proportion of RMB in global foreign exchange reserves.