In an announcement today, the IMF Executive Board has confirmed the previously suggested extension of the current SDR basket of currencies by nine months from December 31 this year up until September 30th next. This leaves the way open for changes to be made, and implemented, in the structure of the SDR basket for a revised basket (if so chosen) to be implemented in October 2016.
The proposal for the extension was put forward by IMF staff in a paper published on August 4, 2015 (see Review of the Method of Valuation of the SDR – Initial Considerations) and subsequently submitted to the Executive Board for lapse-of-time decision.
Normally the IMF would review, and restructure if it chooses to do so, the SDR basket every five years which would have made this process due to be announced in October this year, and implemented at the beginning of next. However the extension is undoubtedly due to internal arguments over the inclusion of the Chinese renminbi and the delay gives the Chinese time to meet some of the requirements of key IMF board members (the USA?) which have almost certainly already led to China’s recent renminbi devaluation against the U.S. dollar. This may at least give it the appearance of no longer being tied directly to the greenback with which it had been in lockstep for a number of years. Whether China will allow a full float of the renminbi on the global currency markets remains to be seen – this may be a step too far, and perhaps also an over-worrying move if implemented for some IMF board members (the USA again?)
The official statement from the IMF says that the ‘nine-month extension is intended to facilitate the continued smooth functioning of SDR-related operations and responds to feedback from SDR users on the desirability of avoiding changes in the basket at the end of the calendar year. The extension would also allow users sufficient lead time to adjust in the event that a decision were to be taken to add a new currency to the SDR basket.’ (The italics are ours – with the only currency likely being considered for inclusion being the Chinese renminbi, and with the country’s now global top GDP status as confirmed by the IMF, it would presumably form a major – if not the major – currency in the SDR basket.)
The inclusion of the renminbi in the SDR basket may be seen by many as downgrading the status of the U.S. dollar in global trade and even possibly as the leading global reserve currency with all the advantages that brings. However any such change in status may take some years to take effect.
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