BLOG

Yuan set to become a world currency

Last May the US-controlled IMF announced their decision to delay China’s currency from becoming part of the SDR basket of currencies for nine months until September 2016. This announcement recognized that the yuan would eventually have to join the US dollar, the euro, the pound, and the Japanese yen, just because of China’s huge amount of world trade. However, the US wanted to postpone its inclusion as long as possible, citing the usual “concerns” that are really just lame excuses.

China fought back, refusing to take no for an answer. A series of chemical plant explosions in China in August suggested that a covert war was taking place between the CIA and China. No doubt this resulted in some high-level secret meetings between the US and China, with some sort of agreement signed in September when Xi Jinping visited the White House.

At any rate, the Chinese have proceeded as if the yuan will be included in the SDR. They have the support of the British government, which has again abandoned the US after joining the AIIB last March. Now Britain supports China’s request for inclusion. Likewise, Christine Legarde, the head of the IMF, also supports China’s inclusion.

http://www.bloomberg.com/news/articles/2015-11-13/imf-staff-recommend-yuan-be-included-in-reserve-currency-basket

China’s yuan is poised to enter the big leagues of global currencies, according to the judgment of the International Monetary Fund.

IMF staff have recommended the yuan be included in the fund’s Special Drawing Rights reserve-currency basket, alongside the U.S. dollar, euro, pound and yen, IMF Managing Director Christine Lagarde said Friday. The staff nod makes approval by the fund’s board this month all but certain….

This “is a very clear and strong endorsement,” said Brendan Ahern, managing director of Krane Fund Advisors LLC in New York. “No hesitation, no ifs, no buts. Very strong recommendation from Christine Lagarde. It isn’t a vote but at the same time it is hard to find any reasons to disagree….”

The report will inform the IMF executive board, which represents the fund’s 188 member nations, ahead of a meeting planned for Nov. 30 to consider the matter. The IMF is wrapping up its twice-a-decade review of the composition of the SDR basket….

Standard Chartered Plc and AXA Investment Managers have predicted at least $1 trillion of global reserves will convert to Chinese assets if the yuan joins the IMF’s reserve basket….

The U.S. took a step toward backing China’s SDR bid in September, when it softened its insistence that the Chinese implement financial reforms to win support….

Chinese officials had since become explicit in their ambitions for the yuan to gain the status at the IMF. After meeting President Barack Obama in September at the White House, President Xi thanked the U.S. for its conditional support for the yuan joining the SDR.

The IMF meeting was postponed from October 20 to early November, and now it is being planned for November 30, 2015. This is the date to watch.

When the yuan is included in the SDR reserve-currency basket, world trade will soon be done in SDR’s, rather than in the dollar per se. This will have enormous financial implications for the other currencies. The Bloomberg article quotes economists predicting that “at least $1 trillion of global reserves will convert to Chinese assets.” This means that central banks will be reducing their stash of the other currencies (including the US dollar) in order to make room for the yuan. This prospect, in fact, is the real reason why the US government has resisted the yuan’s inclusion for many years. They know that the US dollar’s value will suffer as demand for it drops.

Gold may also be included as a sixth currency in the SDR basket. If this is done, gold will once again be monetized, and its demand (and value) will increase further.