Basket case

1 April 2015 By John Foley Follow @johnsfoley

The yuan may meet the IMF’s vague terms for inclusion in its quasi-currency. That doesn’t mean it’s ready for a prominent place in central bank vaults. A big question is how the yuan might fare during a period of financial instability in China. Answers may soon be forthcoming.

This content is for Subscribers only

Context News

China is not yet ready for inclusion into the quasi-currency managed by the International Monetary Fund, U.S. Treasury Secretary Jack Lew said after returning from meetings with economic policymakers in Beijing.

“While further liberalization and reform are needed… to meet this standard, we encourage the process of completing these necessary reforms,” Lew told attendees at an Asia Society event on March 31.

The IMF’s Special Drawing Right is a reserve asset allocated to members of the fund according to their quotas. It makes up around 3 percent of total central bank reserve assets.

Holders can buy and sell the asset among themselves, and in a liquidity crisis can draw up to the value of the SDR in any of the component currencies, which are currently the U.S. dollar, the British pound, the Japanese yen and the euro.

The five-yearly review of the currencies that make up the SDR is due to happen in 2015. A member currency should be “freely usable”, under the current criteria but full convertibility is not required.

Email a friend

Please complete the form below.

Required fields *