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Hardy: Will China join elite currency club & what it means for traders

Every five years the IMF reviews the basket of currencies which makes up the organisation’s reserve assets also known as the Special Drawing Rights or SDR. China is keen is to get the yuan into the SDR and that would be a key milestone for the world’s second largest economy and its currency, says Saxo Bank’s Head of FX Strategy John Hardy.

The IMF’s decision could come at the end of this month and Hardy looks at why it matters so much for Beijing to be included in the weighted basket, which currently is made of the US dollar, euro, yen and British pound. He also outlines what would happen next if the IMF decides to include the yuan as the first emerging currency in its reserves and how China might respond if it is left out in the cold.

Created by the IMF in 1969 to counter concerns about the limitations of gold and US dollar as the only way to settle international accounts, SDRs are a global reserve asset used by the IMF to make emergency loans and by developing nations to shore up their currency reserves. While SDRs themselves are not currencies, they play a crucial role in maintaining macroeconomic stability and global growth by providing emergency liquidity and credit when traditional methods fall short.

03:51 minutes
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