China will join the exclusive club of “hard currency” issuing countries when its currency, the renminbi, becomes a fully fledged member of the IMF’s special drawing right basket on October 1.
But what does this really mean? And why do people think the move could be supportive for the renminbi? And more importantly, would it really?
Julian Evans-Pritchard and Mark Williams at Capital Economics make a strong argument on Monday that most likely it wouldn’t. To the contrary, they believe the inclusion will mostly mean Chinese government bond yields are factored into the calculation of interest earned or paid on countries’ SDR imbalances (every country is given a quota of SDRs, and whether they are above or below that quota governs whether they pay or receive interest).