Committee for the Abolition of Illegitimate Debt

The Chinese currency will be treated as a reserve currency alongside the other SDR currencies (the US dollar, euro, pound sterling and yen). It will be easier for any country’s central bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx to use the yuan as a reserve or store of value, to exchange with their own currency or pay international debts. The inclusion of the yuan in the SDR basket means that developing countries, which have increasing trade linkages with China, can keep the yuan as part of their reserves and use it to settle trade with China. This is one of the ways in which China’s global economic influence is expected to increase as a result of the inclusion. The yuan will represent a 10.92 per cent share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. , or weighting, of the SDR’s value. The yuan will have a greater weight than sterling or yen, which will drop to 8.09 and 8.33 per cent respectively, and will reduce the euro’s share to 30.93 per cent from 37.4. The dollar will remain almost unchanged at 41.73 per cent of the SDR’s value. The new formula to calculate the SDR provides greater importance to financial variables and less to exports. China has long advocated that its economic weight and global importance should be reflected by the inclusion of the yuan in the SDR basket. To achieve this, the yuan had to be considered by the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org to be ‘freely usable’, e.g. easily convertible.

In November, IMF managing director Christine Lagarde called the inclusion a “clear indication of the reforms that have been implemented and will continue to be implemented”. Following the announcement, the People’s Bank of China (the Chinese central bank) confirmed that it will “deepen and accelerate economic reforms and financial opening up”. Despite significant global attention, news agency Reuters interpreted the IMF’s announcement as “largely symbolic, with few immediate implications for financial markets”. Chinese national news agency, Xinhua, disputed this view in a late November article arguing that the IMF’s decision is “more than symbolic”. It pointed out that as London’s financial hub “has been working hard over the past few years to develop [itself] as a center for remnimbi trading Market activities
trading Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit. ”.

China has long advocated that its economic weight and global importance should be reflected by the inclusion of the remnimbi in the SDR basket

Uncertain as to whether the IMF would indeed endorse the yuan’s inclusion, China implemented a “flurry” of reforms designed to ensure successful inclusion, including better access to Chinese currency markets for non-Chinese investors and more frequent issuance of debt and longer yuan trading hours, according to Reuters. The article also reported that financial markets would “remain cautious as long as China did not fully liberalise capital controls or allow the currency to float freely”. August reforms designed to enable markets to have a greater say determining the yuan’s exchange rate led the currency to lose value.

Kevin Gallagher, of Boston University, argued that “critics have held China to a double standard. Japan, France, and even the United States had capital controls in place when they joined the SDR basket.” Paola Subacchi, of UK research institute Chatham House, wrote in the Nikkei Asian Review in December that the “five years to push the yuan’s transformation into an international currency … has been remarkable”, noting that 25 per cent of China’s trade is now conducted using its own currency as opposed to less than one per cent in 2009. However, she cautioned that due to the controls China continues to maintain on capital flows into and out of China “there is no guarantee that progress will continue … the yuan remains a currency with limited international circulation” . Subacchi concluded that until it is fully liberalised “any suggestion that the yuan may one day rival the dollar … is wishful thinking”. In contrast, Gallagher argued that “China will continue to need to regulate capital flows in order to ensure financial stability and balanced growth. China should be rewarded for this approach, not ridiculed for it.”

In January, at the World Economic Forum in Davos, Switzerland, Lagarde declined to address to the use of capital controls by China to protect the renminbi in face of downward pressure on the currency, commenting that “the massive use of reserves is not a good idea” and “what is needed for markets is clarity and certainty.”

Source: Bretton Woods Project