BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/32
The SDR above all is a synthetic currency of large exporting nations. Included currencies must also be freely usable. While the yuan met the gateway export criterion in the previous SDR review in 2010, it failed at that time to fully meet the free use criterion, which considers how widely the currency is used in various financial operations and in different markets.
The IMF report notes that, despite the rapid rise in international use of the yuan, generally its use is still less than that of the top SDR currencies: the US dollar, euro, Japanese yen and British pound. In its survey, the IMF found that 38 member states held yuan in their foreign reserves in 2014, but the yuan’s share of global foreign official assets was just over 1 % (which was still less than the share of official foreign asset holdings for the Australian and Canadian dollars). The report’s authors suggest that the markets’ capacity to absorb potential forex conversions associated with SDR operations would be higher for the current SDR basket currencies than for the yuan.
In the final analysis, any decision on incorporating the yuan into the SDR basket will depend on the judgement of the IMF Board. A positive decision requires that China commits to opening up capital movements, a requisite that appears to already be in place. To assure market participant wishes are met and assure the technical smoothness of SDR operations, however, IMF staff recommend that no matter what the IMF Board decides in November, the current composition of the SDR basket should remain unaltered until the end of September 2016.