IMF Gives Initial Approval For China To Join SDR
As I have been predicting for quite some time, the IMF is set to approve China in the SDR global currency basket and 2015 has proven to be a history making year for economic instability. IMF head Christine Lagarde has signed off publicly on the Yuan proposal making the deal all but finalized. The issue now is, how fast will the dollar lose world reserve share as the Yuan floods into the market? It all depends on what takes place in the economy in the meantime. A rate hike in December may trigger a short term “boost” to the dollar and treasuries, but I believe this will end quickly as the markets begin to realize that without zero interest rates there is no longer ANY support for stocks. A plunge in equities is guaranteed. When the global slowdown becomes obvious by the end of this year as dismal holiday sales are tallied, the health of the entire U.S. economy will come into question. This may facilitate a faster moving dump of dollar denominated assets around the world. Once the Yuan finds SDR inclusion and U.S. rates are increased, all bets are off…
Brandon Smith, Associate Editor
Earlier this year, the International Monetary Fund (IMF) called for a delay until at least well into 2016 before the Chinese Yuan would be recommended for inclusion in the Special Drawing Rights (SDR) basket of currencies. But with such a rapid increase in RMB acceptance over the past few months, and the creation of Yuan bond hubs in London and Germany, the IMF appears to have accelerated their timeline with IMF Chief Christine Lagarde announcing on Nov. 14 that she is recommending the currency for immediate inclusion in the SDR.
Lagarde cited numerous reforms that China has instituted over the past few months as the catalyst for this swift reversal of opinion on the Yuan’s inclusion occurring now rather than later, and has set in motion the potential for China to compete head on with the dollar‘s long-standing reign as the only global reserve currency used as the primary medium for trade.
China has for awhile believed that acceptance into the SDR would come swiftly, as seen by their recent creation of a new counterfeit proof 100 Yuan currency bill meant to help internationalize the Yuan by exporting it for trade. And with the Yuan already number two in global trade settlement, passing the Euro on the list back in 2013, its star is rising at the same time the dollar’s use in trade settlement wanes.
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