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SDR Currency Weightage and Yuan's Role

The document discusses Special Drawing Rights (SDR), which is a kind of foreign exchange reserve created by the IMF in 1969. It consists of a basket of currencies from major economies such as the US dollar, euro, British pound, and Japanese yen. China is pushing to include the yuan in the SDR basket in order to increase its global influence and reduce dependence on the dollar. Inclusion of the yuan would make it a reserve currency and allow China greater control over economies that borrow from the IMF. However, developing the yuan as a reserve currency faces challenges as China still has limited financial markets for foreign investment.

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137 views1 page

SDR Currency Weightage and Yuan's Role

The document discusses Special Drawing Rights (SDR), which is a kind of foreign exchange reserve created by the IMF in 1969. It consists of a basket of currencies from major economies such as the US dollar, euro, British pound, and Japanese yen. China is pushing to include the yuan in the SDR basket in order to increase its global influence and reduce dependence on the dollar. Inclusion of the yuan would make it a reserve currency and allow China greater control over economies that borrow from the IMF. However, developing the yuan as a reserve currency faces challenges as China still has limited financial markets for foreign investment.

Uploaded by

raxit519indian
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
  • Special Drawing Rights (SDR)

(Special drawing Rights)

This is a kind of Reserve of Foreign Exchange Assets.

It is a basket of reserve currencies.

Comprising leading currencies globally and created by IMF in 1969.

SDR is often regarded as a 'basket of national currencies' comprising four major currencies of the
world - US dollar, Euro, British Pound and Yen (Japan).

The composition of this basket of currencies is reviewed every five years wherein the weightage of
currencies sometimes get altered.

The currency must be 'freely usable'.

Beijing is pushing for the yuan to join the SDR as part of its long term strategic goal of reducing
dependence on the dollar and to mark the country's coming of age as an economic power. Yuan
effectively becomes a reserve currency, affording China the flexibility of settling all its external
obligations with its own currency (what has been described as an "exorbitant privilege").

Also as IMF is a lender and it lends to the countries in form of currencies included in the basket,
inclusion of yuan in the basket paves the way for Chinese currency to enter into the economy of fund
wanting countries. Thus, it can make these countries dependent on China and hence, increase the
hold of China on these economies as part of its expansion policy.

As part of this move China's central bank has freed the interest rate market by scraping the ceiling
on deposit rates.

China is moving towards more market based economy.

At least $1 trillion of global reserves will migrate to Chinese assets if the yuan joins the IMFs reserve
basket, according to Standard Chartered Plc and AXA Investment Managers.

On the negative side, there is no market or a very small market at present in the world for Chinese
security for other countries to invest in and hold renminbi as Forex reserve.

વવિશશેષ સસંકષર્ષણ અવધિકકારર (Special drawing Rights)  This is a kind of Reserve of Foreign Exchange Assets.  It is a baske

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