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International Monetary Fund Managing Director Christine Lagarde during a news conference, Washington, Nov. 30, 2015 (AP photo by Susan Walsh).

IMF Move on Yuan Shows That Excluding China Is a Losing Bet

Friday, Dec. 4, 2015

On Monday, the Executive Board of the International Monetary Fund (IMF) voted to add China’s currency, the yuan or renminbi, to a very short list of elite global reserve currencies. Next fall, the yuan will officially be added to the IMF’s Special Drawing Rights (SDR) basket of currencies, which presently includes just the dollar, euro, yen and pound sterling. In part, the decision reflects the undeniable reality of China’s economic rise. However, the decision is also a pragmatic, perhaps even savvy, move by the IMF and the United States to further incorporate China into an international financial order that largely reflects Western economic ideas and interests.

The SDR is sometimes referred to as a “synthetic currency.” Its value changes daily and is based on a weighted combination of the four—soon to be five—currencies that make up the basket. From a practical standpoint, SDRs do not really matter very much. Their most prominent role is as a unit of account for the IMF. For example, the IMF officially reports its own assets and liabilities in SDR terms. ...

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