2015-10-23

Yuan Headed For SDR Inclusion Clears Way for Depreciation

China's efforts at Propping Up Yuan Ahead of SDR Inclusion can be eased once the political goal of inclusion is achieved.

Bloomberg: IMF Said to Give China Strong Signs of Reserve-Currency Nod

Patrick Chovanec explains why it doesn't really matter: 4 Trillion Reasons China’s Currency Isn’t Ready for Prime Time

The only thing it will do is allow China to tick off a box, having achieved a superficial modicum of "internationalization" for the renminbi. It doesn't matter whether a currency is in or out of the basket (unless it's used to replace the U.S. dollar as reserve currency) and the demand for renminbi will not change as a result. As Mish succinctly puts it:
The Yuan is pegged to the dollar. As long as that peg is in place, one may as well keep dollars instead of yuan in reserves, assuming the exchange rate is steady.

But China recently devalued the yuan. It makes far more sense to hold dollars, not yuan, if one expects another devaluation.
And devaluation or depreciation is all the more likely once the yuan is added to the SDR.

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