Inclusion of China’s Yuan in SDR – A Threat To The American Monetary Hegemony?

China has contributed considerably to international business in the global economy. China ultimately has got an entry into the elite club of IMF. Now, Yuan is an official member of the basket IMF’s global reserves of currencies. These global currencies are known as Special Drawing Rights (SDR). The inclusion of Renminbi (RMB) in IMF indicates the increased importance of China in the global economy. It has been included in the SDR basket as the fifth currency effective from 1st October 2016 which means it deserves to be freely traded (click here to read more about this). China is a significant element of BRICS and growing as one of the most emerging economies of the world. The inclusion is expected to promote the usage of the Yuan globally.

The expansion of SDR has created a milestone in history. China has progressed greatly due to its monetary policies, financial systems, foreign exchange, and other financial reforms. After the addition of Euro to the basket, RMB has been given a new place in the basket. The other currencies in the basket are US Dollar, Euro, Japanese Yen, and Pound Sterling. It depicts the global evolution of the economy and revolutionary change in IMF because it is the first currency to be included from the emerging market economy.

Emerging Threat To The U.S. Dollar Hegemony?

The inclusion of Yuan will threaten the status of dollar too, as their earlier application for inclusion of Yuan was rejected in the year 2010. Becoming the member of the global currency means that it is determined as a free tradable currency. The weights for each currency are:

  • 10.92% Chinese Yuan
  • 8.09 % Pound Sterling
  • 8.33% Japanese Yen
  • 30.93% Euro
  • 41.73% US Dollars.

The continuing efforts of IMF with safeguard measures would promote the economy of China and the world. As per the IMF authorities, the growth of China, especially reforms, global trade, and infrastructure had motivated the decision of inclusion. Hence, it is believed that this decision would increase the usage of Renminbi internationally.

To promote transparency, the Chinese government has taken immediate steps for data disclosure and fulfills the commitments. The Chinese government is regularly dealing with the Bank for International Settlements to provide details of banking sector statistics.

The inclusion provides several benefits to China. The emergence of China as an emerging economy has led to the addition of Renminbi as global currency in IMF, hence it would surely boost the country’s growth and development and would encourage effective trade and investment.

As per Bloomberg the elevation of Yuan would bring billions and billions of investments and would prompt Central Banks and eminent fund managers to buy more assets of China. Surely, China needs cash to boost its economy. It is much needed that the Chinese Yuan increases the purchasing power of China to make it one of the largest consumers as well as commodities producers/consumers in the world.

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