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The IMF Lifted The Yuan's Weighting, Opening Chinese Financial Markets

imf lifted yuan's weighting
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EDITOR'S NOTE: Well, it looks like the fears of a dollar dump from the International Monetary Fund’s Special Drawing Rights (SDRs) can be set aside for now following the organization’s currency basket rebalance. In fact, the IMF lifted the yuan’s weighting along with the dollar while those of other currencies declined. The SDR is an international reserve asset that can be converted into five currencies. Having a strong weighting in the basket means having strong veto rights with regard to SDR issuance and distribution. While the Biden administration is looking to maintain a favorable relationship with the IMF (seen by many on the conservative end as yet another glaring weakness on Biden’s part), it at least allows the US to maintain some pressure on the IMF’s SDR agenda. The IMF's latest move also attests to the rising strength and influence of China; an economic and military powerhouse and America’s greatest rival and threat.

The IMF raised the yuan's weighting to 12.28 percent from 10.92.

The  Monetary Fund lifted the yuan’s weighting in the Special Drawing Rights currency basket, prompting the  to pledge to push for a further opening of its .

The IMF raised the yuan’s weighting to 12.28 per cent from 10.92 in its first regular review of the SDR evaluation since the Chinese currency was included in the basket in 2016, the People’s Bank of  said in a statement Sunday. The weighting of the US dollar rose to 43.38 percent from 41.73 per cent, while those of euro, Japanese yen and British pound declined.

The PBOC and other regulators “will continue to resolutely push for the opening up of China’s  and further simplify the process of overseas investors coming into the Chinese market,” it said in the statement.

SDRs are an  reserve asset that can be converted into five currencies. The yuan’s entry into the SDR signaled it became one of the five global reserve currencies in 2016, after years of effort by Chinese authorities to promote its global use.



Source: Business Standard

The change came amid a sharp depreciation of the  since late April, as it faces a double whammy of slowing domestic growth because of Covid-induced lockdowns and capital outflows due to its widening monetary policy divergence with the US. The PBOC set its reference rate for the  at a stronger-than-expected level for a ninth straight day on Friday, underpinning its support for the currency.

In its statement on Sunday, the PBOC vowed to extend the interbank foreign exchange trading time, make more types of assets available and improve information disclosure in order to provide better investment conditions to global institutions.

The ranking of the currencies’ weighting remains the same after the review, according to an IMF statement released late Saturday, with the  continuing to be in third place. The change will be effective Aug 1, and the next review will be in 2027.

IMF’s executive directors concurred that neither the pandemic nor developments in financial technology have had any major impact on the relative role of currencies in the SDR basket so far.

Originally published on Business Standard.

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