RARELY in their 46-year history have Special Drawing Rights commanded quite so many headlines. SDRs play a mostly arcane role in the global financial system. Technically they constitute an international reserve asset that helps maintain balance between countries with big external liabilities and those flush with cash. In practice, they are more marginal, as countries largely rely on capital markets and hard currencies to cover their obligations.
Now China, eager to make the yuan go global, has placed SDRs in the spotlight. The International Monetary Fund, which manages the SDRs, is conducting a five-yearly review of the basket of currencies that form its value. China wants it to bring the yuan into the basket.
That would be a big decision, meaning that the IMF has in effect recognised the yuan as a reserve currency, despite China’s extensive capital controls. It would not suddenly turn the yuan into a rival to the dollar (as we lay out in this week’s issue, that is still a long time off). But it would be a symbolic boost to its international standing, giving countries more confidence to add the yuan to their currency reserves. In a newly published Continue reading
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