Yuan at high table

Inclusion of the Chinese currency in the global currency basket is a landmark event

The inclusion of the Chinese currency in the basket of currencies that makes up the benchmark special drawing rights (SDRs) issued by the International Monetary Fund is a landmark event. Few remember there were 15 currencies in the original SDR basket but that number was gradually whittled down to five since 1980. It is a sign of growing Chinese heft that its currency will now have a greater weight in the synthetic currency than the Japanese yen and the British pound.

There are several reasons to doubt whether the Chinese financial system is as open as those of the other countries who issue global reserve currencies. But that is now a dead debate. The yuan has arrived at the high table. There are now more practical questions. First, will the Chinese finally stop sudden currency moves (mostly devaluations) that unsettle financial markets? Will other central banks feel confident enough to keep yuan assets in their reserves? Will greater demand for the yuan push up its price?

The jury is still out.

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