The yuan will be the third most powerful currency in the IMF basket

The yuan will be the third most powerful currency in the IMF basket

by Ariel Noyola Rodríguez

In spite of the fierce opposition of the US treasury Department, on November 30 the IMF finally approved the inclusion of the yuan in the Special Drawing Rights, the currency basket created in 1969 to complement the official reserves of the members of the multilateral organization. With this the Chinese currency will become, next October 1 (2016), part of the integrating fifth of the IMF basket. The financial influence of China on a world scale will continue to grow at high velocity: the weight of the yuan in the Special Drawing Rights will be greater in comparison with the Japanese yen and the pound sterling.

VOLTAIRE NETWORK | MEXICO CITY (MEXICO) | 10 DECEMBER 2015

A few months ago there was considerable skepticism as to whether the International Monetary Fund (IMF) would incorporate the Chinese «people’s currency» (‘renminbi’) in their basket of currencies [1]. Finally, the doubts disappeared: in spite of the fierce opposition of the US Treasury Department, very soon the yuan will become the fifth member of the currency basket of the IMF [2].

How did we get here? In the midst of the crisis of fixed parities –that was established in 1944 –, in 1969 the IMF created some reserve actions, that are called Special Drawing Rights (SDR). As the Federal Reserve System (FED) of the United States found it impossible to exchange for gold the excessive quantity of dollars that the central banks of the rest of the world had accumulated, the objective of the DEG was to complement the official reserves of the countries that formed the IMF.

At first the value of the DEG was defined as the equivalent of 0.888671 grams of fine gold. Already in a second moment, after the fall of the Bretton Woods agreement, the value of the DEG was established in reference to a basket of currencies of the biggest economies of the time: the United States, Germany, Japan, the United Kingdom and France. At the end of the 1990s, the IMF basket was left conformed to the dollar, the euro, the Japanese yen and the pound sterling.

[link to twitter.com (secure)]