IMF Expected to Include Yuan in SDR Currency Basket

The International Monetary Fund’s (IMF) Executive Board meets on Monday to discuss a staff proposal to include China’s yuan, or renminbi as it’s also known, in an exclusive group of currencies that make up the basket of the IMF’s Special Drawing Rights (SDR).

The prospects of inclusion, which will represent public acknowledgement of China’s heft in the global economy, look pretty high given that the U.S., a major investor in the fund, has backed the move, as has the IMF’s Managing Director Christine Lagarde.

Here’s what you need to know about why this change matters to global markets.

So, what exactly is the SDR?

The SDR is a type of international reserve asset that the IMF created in 1969 to buttress the Bretton Woods system of fixed exchange rates that was established at the end of World War II.

Back then, countries could use gold holdings and widely accepted currencies to buy their local currencies overseas in order to maintain their exchange rates. But the supply of gold and the dollar could not keep pace with the growth in world trade or new developments in financial markets. So the IMF created an asset that could be exchanged for freely usable currencies.

Countries are allocated SDRs in proportion to the IMF quotas they pay. They can use SDRs to make payments for future quota increases, to settle debts they owe to the IMF, which uses SDRs as a system of account, or to rebalance their reserves.

The importance of SDRs waned somewhat after the Bretton Woods system collapsed in 1973 and countries let their currencies move more freely in line with market forces. Still, SDRs came in handy during the global financial crisis when they helped supplement member countries’ official reserves. As of September 2015, SDRs worth $204.1 billion had been created and allocated to IMF’s members. This number is equivalent to about $280 billion.

Currently, the value of an SDR is based on a basket of four currencies: the euro, Japanese yen, pound sterling, and the dollar. At Monday’s meeting, a decision will be made on whether the yuan should be added to this group.

It’s important to note that the SDR is not a currency nor a claim on the IMF. Instead, holders of SDRs can exchange them for currencies that make up the basket, through deals with other SDR holders.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

Latest posts by Craig Erlam (see all)