As the next five-year review of the International Monetary Fund's international reserve asset approaches, reviewers should strongly consider the case for including the yuan in the basket.
The Special Drawing Rights (SDR) is an international reserve asset used to supplement IMF member countries' official reserves. Its value is based on a basket consisting of four key international currencies, namely the U.S. dollar, euro, British pound and Japanese yen.
The IMF has two criteria for SDR basket currencies. The first is "major trading country." This applies to currencies whose exports of goods and services during the five-year period ending 12 months before the effective date of the revision had the largest value. Then there is the "freedom of use" criterion for currencies determined by the IMF to be widely used to make payments for international transactions and to be widely traded in the principal exchange markets.
In the 2010 review, the yuan was deemed to meet the first criterion, but it fell short on freedom of use. So what are its prospects in the review in 2015?
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