Photo: vision China
The International Monetary Fund (IMF) Executive Board today completed the five-yearly review of the SDR currency basket composed of the work. The directors will be a main focus of the review is whether the Yuan in line with the existing standards, which can be included in the SDR basket. Directors decided to think RMB complies with all existing standards, since October 1, 2016, the RMB was identified as freely usable currencies, and will serve as the fifth currency, dollar, euro, Yen and Sterling, to form part of SDR currency basket. To ensure that the Fund, the Fund members, as well as other special drawing rights used to have sufficient time to adjust to the new changes, the new basket would come into effect on October 1, 2016.
After a Board meeting, head of the International Monetary Fund, Ms Lagarde said “the Board presentation on the Renminbi to a basket of currencies in the SDR’s decision is an important milestone in China’s economy into the global financial system. It was imposed by the Chinese authorities in the past years in the reform of its currency and the recognition of achievements scored in its financial system. China in this field continues to advance and deepen promote a more dynamic international monetary and financial system. Which will support China’s and global economic development and stability. “
Value of special drawing rights by including US dollars, euros, Renminbi, Yen and Sterling, the weighted average value of the basket of currencies. Renminbi currency in the SDR basket basket diversified and more representative of the world’s major currencies, thereby helping to enhance the attractiveness of the SDR as a reserve asset. SDR interest rate will continue to be in SDR basket of currencies, short-term financial instruments of the money market interest rate weighted average value. All currencies in the SDR basket of authorities of the issuing State (currently also includes the Chinese authorities) should be maintained to facilitate its organization and its Member States and other parties to use special drawing rights policy framework for its monetary operations. Board discussion paper will be distributed in the near future.
Question 1: what is an SDR?
Special drawing rights is to create a Fund in 1969, international reserve assets to replenish official reserves of member countries. SDR value according to the four major currencies (US dollar, euro, Yen and Sterling) of a currency basket to determine. On October 1, 2016 after the commencement of a new currency basket, basket will be expanded, the Chinese Yuan will be added as the fifth currency basket.
Fund according to each Member’s share of the Fund, special drawing rights allocation to the Member States. So far, allocated a total of 204.1 billion special drawing rights last distribution in 2009, the allocations to 182.6 billion special drawing rights.
SDR is not a currency, or claims against the Fund, but the IMF member countries are free to use the currency of potential claims. Holder of special drawing rights can be done in two ways, with its special drawing rights in Exchange for these currencies: one is through voluntary exchange arrangements between the Member States; the second is the strong Fund specified external conditions from weak external position by Member States Member States to purchase special drawing rights.
In addition as a supplementary reserve assets, special drawing rights fund organizations and other international organizations unit. SDR is also used to fund financing arrangements with Member States.
Question 2: special drawing rights usually covers what?
Board normally every five years to review the composition of the SDR basket in order to enhance the attractiveness of the SDR as a reserve asset. Review covers key elements of SDR value method, seek to ensure that the value of special drawing rights reflect the currency in global trade and the relative importance of the financial system. These elements include: criteria for selecting SDR basket of currencies, basket of currencies the number of, and the method of determining the monetary weight. Formed a special drawing rights basket of financial instruments interest rate is usually within the scope of the review.
Ends in November 2015 review, the Board decided, as from October 1, 2016, China’s Renminbi will be found to be freely usable currency, and as the dollar, euro, Yen and Sterling fifth than the currencies in the SDR basket. In addition, the revised weighting formula to solve their long-standing shortcomings.
Question 3: what are the criteria for joining the SDR currency basket?
Current standard was approved by the Board in 2000. Directors determined that basket of special drawing rights by five-year period in goods and services, export value of four (October 1, 2016 to five) or currency issued by the Union, the Member States and the IMF as “freely usable” currencies.
Export standard plays a “threshold” role is designed to ensure that eligible basket of currencies is by those playing a central role in the global economy of the Member States or the issue of Monetary Union. Ever since the 70 ‘s of last century, which has been part of SDR value method.
In 2000, an increase of the currencies in the SDR basket must also be free to use this standard to allow currency selection criteria reflect the importance of financial transactions.
Board review in 2015, the special drawing rights adopted decision reaffirmed the existing two substantive standards (export and is free to use) and basket size expanded to five from four currency currency, entered into force on October 1, 2016. Board made that decision was taken into account, made up of five currencies basket will be more stable, more representative, while expanding the basket of the administrative burden is manageable.
Question 4: how to define a “freely usable” currencies?
Under the IMF agreement, if the Fund finds that a Member State would in fact widely used in international payment transactions and widely traded in major foreign exchange markets, the currency is defined as “freely usable” currencies.
Freely usable currency concerns the concept of the actual international monetary and trade, cannot be equated with full convertibility of a currency to float freely or.
Can be widely used and widely traded currency, even if it was some capital account restrictions (past, the pound and the yen have been identified as freely usable currency, there is still some controls over the capital account). The other hand, a fully convertible currency may not be widely used and widely traded.
Are free to use the concept in a Fund of funds operation plays a central role. In particular, Member States entitled to accept IMF financial assistance is free to use the money to provide such assistance. Indeed, IMF lending is actually by freely usable currency or special drawing rights. In the case of special drawing rights, the borrower has the right to special drawing rights will be exchanged for freely usable currencies. Financial operations, the concept aims to ensure that Member States are free to use, directly or indirectly (Exchange into another currency without loss) to receive money from the Fund to meet the balance of payments financing needs.
Problem 5:2015 special drawing rights focus of the review and what is the result?
Fund recently concluded its special drawing rights basket five-yearly review. In view of China’s exports continue to meet in the SDR basket standard and focus of the review is to evaluate whether a Renminbi qualifies in the SDR basket another standard, which can be identified as a freely usable currency. To judge whether a currency is in line with the Standards Board must determine if the paid money in fact is widely used in international transactions and widely traded in the major foreign exchange markets.
Of Board November 2015 30 meeting decided that from October 1, 2016, the Chinese Yuan will be found to be freely usable currency, and as the dollar, euro, Yen and Sterling fifth than the currencies in the SDR basket. In addition, according to the new formula of weight on the currencies in the SDR basket weight is adjusted, the new formula is based on the country’s export value, funds held by the other Member States of the Organization to the basket of currencies-denominated reserves, foreign exchange trading in total as well as the value of the basket of currencies of international bank liabilities and international debt securities.
Question 6: why do Fund staff suggested the Renminbi to a basket of currencies in the SDR?
International use and trade to increase. In 2010, since the last review of special drawing rights, currency used in international payments has significantly increased. In addition, three major trading time zone, covers two time zones of Yuan trading in currency markets has increased substantially to meet fund business deals involved. In the staff’s view, which finds currency in international payment transactions in “widespread use”, and in the principal exchange markets “widely traded” provided the basis.
Operational requirements. While the operation is not a official requirements of the currencies included in the SDR basket, but staff believe that fund organizations and their Member States and the other uses special drawing right now in Renminbi operations without major obstacles, this means that can be reasonably sure, smooth operation of Fund-related business. This is the Chinese authorities have recently implemented the reforms (mainly decided to fully open to the official reserve managers and agents in the Bank fixed income and foreign exchange markets) a direct result. Chinese authorities have also taken a key reform measures to promote a broader reform agenda, supporting international use of the renminbi and strengthen macro-financial stability, for example, completely liberalized domestic interest rates marketization degree take steps to improve the exchange rate, and the introduction of new cross-border interbank payment system.
Strengthen the disclosure of additional steps. Although disclosure is not an official standard of the currencies included in the SDR basket, but the issuer of the currency basket is usually in line with high standards of transparency. China has recently taken a very welcome step, expand disclosure and enhanced commitment to multilateral data initiative.
Question 7: why Dec support the inclusion of the Chinese Yuan basket of special drawing rights?
IMF directors will decide whether the Yuan should be determined for freely usable currencies and be included in the SDR basket. Since there is no predetermined threshold or benchmark, the final decision needs of Board under the IMF agreement “free to use” definition and the quantitative indicators to make policy judgments.
Staff-written report provides a rigorous technical assessment and clear recommendations, for the information of Directors.
Dec agreed with the staff analysis and recommendations, found that China’s Yuan is free to use, and as the dollar, euro, Yen and Sterling fifth out of currencies included in the SDR basket, came into force on October 1, 2016.
Question 8: when the Yuan was formally included in the SDR basket?
Contains a new currency basket of the Renminbi will come into effect on October 1, 2016.
According to the special drawing rights used feedback, they will extend the validity period of previously existing basket until the end of September 2016. This decision reflects the following wish: avoiding baskets at the end of the calendar changes (low volume); in the current formation of special drawing rights to review more than usual under uncertain environment, promote special drawing rights-related operations continue to run smoothly; if it decided that the special drawing rights basket to add a new currency, can set aside enough time to adjust.
Question 9: why the Yuan become freely usable currency on October 1, 2016?
Yuan had reached was identified as freely available and included in the SDR basket of currencies all conditions and operational requirements. However, if the Fund finds that can be freely used currency from the closing date of the review (November 30, 2015) comes into force, then the Fund in cash transactions, you can immediately using the Yuan as freely usable currency, for which the Organization and its Member States from the operation point of view was not yet ready at this time. Postpone Yuan formally included in the SDR basket can make use of special drawing rights to have time to adjust their business. Therefore, the Fund found that the Yuan is freely available and included in the SDR basket currencies only takes effect on October 1, 2016.
Question 10: why modifying the weighting formula? What are the main changes?
Board has long been recognized that decisions of the SDR basket of currencies weighted old way is flawed, especially relatively low weight of financial variables, scope is relatively narrow and flow (exports) and stocks (stocks) weighted there are endogenous.
At the end of the 2010 special drawing rights review, Directors welcomed the work plan on adjusting the weighting formulas, that work will take into account the relative importance of issues such as trade and financial indicators.
2010 Review Board approved the new formula made by one of the two options. New formula improves the proportion of financial variables and representativeness, and overcome weight problems in the old formula. Under the new formula, export and financial variables have the same weight, and financial indicators could be expanded in order to better reflect the different financial transactions.
Question 11: new special drawing rights of the weight of each currency in the basket is?
Under the new formula, the weight of each currency in the SDR basket are as follows: US $ 41.73%, Euro 30.93%, 10.92% Chinese renminbi, Yen 8.33%, £ 8.09%. The basket will take effect on October 1, 2016.
On September 30, 2016, will use these weights determine new SDR basket of currencies a fixed number. Any day thereafter for each currency in the SDR value share will depend on the exchange rate of the day.
Question 12: after the currency in the SDR basket, the special drawing rights is affected and to fund business operations?
Since 1980, the SDR basket size shrunk from 16 currencies 5 currencies (in 1999, the euro replaced the Germany mark and the French franc), Yuan joined the SDR basket consisting of significant change for the first time.
Yuan’s accession will enhance the attractiveness of the SDR as an international reserve asset, diversified basket of special drawing rights, constitute the basket more representative of the world’s major currencies.
From an operational perspective, Yuan in the SDR basket means that when calculating the SDR interest rate, will be incorporated into a currency tools, in addition to currency exchange program between China and the IMF will also change. This will also affect the future of fund transactions, these transactions will be able to use the Yuan, because Yuan from October 1, 2016 shall be considered as freely usable currencies.
All currencies in the SDR basket of authorities of the issuing State (currently also includes the Chinese authorities) should be maintained to facilitate its organization and its Member States and other parties to use special drawing rights policy framework for its monetary operations.
Question 13: Yuan’s joining to the global monetary system and affect overall financial system?
From a broader perspective, currency in the SDR basket of currencies can be regarded as a Chinese and an important milestone in the process of integration of the global financial system. It also confirmed China’s continued reform process and enhanced role.
Continue to advance and deepen the process of with this fusion, and other emerging-market economies has also made progress in this regard, the international monetary and financial system will be enhanced, which in turn would support global economic growth and stability.
Yuan also will enhance the attractiveness of the SDR as an international reserve asset, because special drawing rights basket will be more diversified, basket structure would be more representative of the world’s major currencies.
Question 14: after currency in the SDR basket, have any effect on renminbi, China?
Yuan in the SDR basket is the recognition of the fact that in recent years, with China’s implementation of policy reforms to shift to a more open market economy, the internationalisation of the Renminbi, had increased. Shanghai to try to “Internet + talent” planning
Currency in the SDR basket for RMB has increased international use and trade play a support role.
Question 15: basket after currency in the SDR interest rate, impact of the SDR interest rate?
Yuan will be October 1, 2016, be included in the SDR basket, impact on the SDR interest rate will depend on the prevailing interest rate. This influence is uncertain. However, as China’s interest rate is now higher than the SDR interest rate interest rates for other currencies in the basket, when the Renminbi be included in the basket, and SDR interest rates may rise.
In April 2016 when you next review the income situation of the Fund, will take into account the special drawing right interest rates likely to rise to fund borrowers, creditors and fund their own income situation of impact.
(Source: International Monetary Fund)
Yuan joined the SDR will affect our lives? I am state securities Du Zhengzheng, want to know about SDR welcome questions