Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Report on Business

Economy Lab

Delving into the forces that shape our living standards
Best Business Blog, EPPY awards, 2011 and 2012

Entry archive:

Economy Lab has moved

Only Globe Unlimited members will now have access to a wide range of insightful commentary
and analysis on the economy and markets previously offered on this page.


Globe Unlimited subscribers will be able to read these columns,
written by some of Canada’s most deeply respected economists,
such as Christopher Ragan, Sheryl King, Andrew Jackson, and Clement Gignac,
as part of our ROB INSIGHT section.


All of our readers will still be able to browse the Economy Lab archives and read our
broader coverage of economic data and news by accessing their 10 free articles a month.


Learn more about Globe Unlimited and how to subscribe.

This November 12, 2010 file photo shows an illustration of Chinese currency 100 yuan notes issued by the People's Bank of China, fronted with an image of former Communist party leader Mao Zedong and on the rear, the parliament building Great Hall of the People, in Beijing. (Frederic J. Brown/AFP/Getty Images/Frederic J. Brown/AFP/Getty Images)
This November 12, 2010 file photo shows an illustration of Chinese currency 100 yuan notes issued by the People's Bank of China, fronted with an image of former Communist party leader Mao Zedong and on the rear, the parliament building Great Hall of the People, in Beijing. (Frederic J. Brown/AFP/Getty Images/Frederic J. Brown/AFP/Getty Images)

IMF should include the yuan in its Special Drawing Right Add to ...

A proxy of the currencies that matter is the International Monetary Fund's Special Drawing Right, or SDR, whose value is determined by a basket that includes the dollar, the euro, the pound and the yen.

Towards the end of last year, the fund opted to leave the composition of the SDR unchanged. That decision surprised some. Given China's dominance of world trade, it seemed logical to include the yuan in the group. There was some speculation in foreign exchange markets that the newly strong Canadian dollar might be added.

A new report by the IMF suggests that it will be only a matter of time before the fund gets itself a bigger basket. The paper is called " Enhancing International Monetary Stability - A Role for the SDR?" and was released Thursday in conjunction with a discussion on the international monetary system at IMF headquarters in Washington.

The paper makes specific mention of the debate over including the yuan, also called the renminbi, in the SDR basket. The yuan was excluded because the Chinese government strictly controls the number of renminbi allowed to circulate outside the county. To be in the SDR basket, a currency is supposed to be "freely usable."

But IMF staff members are now questioning whether that needs to be the case. The report notes the Chinese government is slowly allowing more non-residents, including central banks, to hold yuan-denominated deposits. The gradual development of renminbi derivatives in Hong Kong could, eventually, help deal with technical issues related to hedging exposure to currencies in the SDR basket - key if the SDR is to have a bigger role in foreign-exchange markets, as some, including IMF Managing Director Dominique Srauss-Kahn, would like.

Why does this matter? Including the Chinese currency in the SDR basket is seen as a way to coax the government into playing a bigger role in the international monetary system. It was China's central bank governor who rekindled interest in the SDR by musing in 2009 that the IMF's unit of exchange could be used to help calm volatility in currency markets. The inclusion of the yuan in the SDR basket could also be an important step in convincing private investors to take SDRs seriously because they would offer a means to get exposure to the Chinese currency.

The SDR was conceived in 1969 as an international currency, but never got off the ground. Have times changed? Stay tuned: we're about to find out.



 

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories