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With all the hallaballoo in the Western media about China's bid for the Renminbi to be one of the exclusive four currencies that are used to determine the Special Drawing Rights (SDR/XDR) of member countries, the FACT is that these SDR's, better called by its alternate acronym XDR's, are nowhere close to being "Super Dollar Reserves" but in fact, account for less than 4% of global foreign exchange reserve assets. XDR's have therefore been labeled by the IMF itself as an "Imperfect Reserve Asset".|
If China wants to benefit from the Yuan becoming a foreign currency reserve asset of other countries, in order to earn interest on the Yuan-denominated loans to countries in need of a foreign currency reserve in order to validate its own fiat currency, then trying to achieve that goal through the IMF's SDR would be like an elephant trying to enter a keyhole.
Used as a pretext to overvalue the Yuan to the detriment of China's domestic manufacturers, whose products have become overpriced abroad in dollars, and also overpriced inside China herself in Yuans compared to imports, the whole nonsense is equivalent to a humbug paying the price of a Mercedes Benz for a Voksvagen Beetle, and patting his own back that he has proved he can afford a Benz, all the while still getting nothing more than a Beetle.
The current economic and monetary team needs to have their heads examined.
The Yuan is doing fine without having to be overvalued against the US dollar, because when it is left alone to match the market demand and supply, its exchange rate would have naturally drifted to between 6.50 to 7.00 CNY/USD, which would expand China's exports, which is now CONTRACTING due to its overvaluation of the Yuan - exports being another cardinal criterion for admission to the select grounp of IMF's reserve currency basket for its XDR (Imperfect Reserve Asset, according to the IMF itself) - so how can China hope to join the company of clowns when in trying to buy itself a clown's costume, it loses its clown's cap in the process?
Furthermore, even if the IMF agrees to give China's currency a 6% allocation of the reserve currencies underlying the XDR, that is still half of what Japan or UK already has. And look at their banking and trade balances - their results are WORSE than China's without being one of the sellect reserve currencies UNDER THE IMF.
Now, I am not against the Yuan becoming a GLOBAL RESERVE CURRENCY. That is, one that other central banks keep as a reserve in case it needs to settle trades and loans with China in the future, to hedge against fluctuations in the exchange rates of the other major currencies, like the dollar, euro, yen and pounds sterling. The Yuan can, in fact, become a GLOBAL RESERVE CURRENCY by simply devaluing the Yuan to a market-clearing exchange rate, where its exports are fully sold out, to fulfill the demands of the world, and that exchange rate is not the current exchange rate, but rather one between 6.50 to 7.00 Yuan/Dollar. When other countries need to pay for their imports from China or to pay their loans denominated in Yuans that China lends to them, they WILL AUTOMATICALLY KEEP THE YUAN AS ONE OF THEIR RESERVE CURRENCIES, not because the IMF has approved it, but because THEY NEED IT TO HEDGE AGAINST THE RISKS OF HOLDING OTHER CURRENCIES AND DEFAULTING ON THEIR DEBTS TO CHINA, OR BECOMING UNABLE TO IMPORT NEEDED GOODS FROM CHINA.
So, how can China benefit MORE from a very restricted, and non-market-oriented IMF-controlled XDR, by giving up a more market-oriented, freely usable, freely tradable Yuan? Achieving reserve currency status in the IMF is acheiving it for only 4% of the global reserve currency assets, and does not really achieve what China intends, which is to achieve the reserve currency status of the dollar, which takes more than just IMF blessings to achieve. As a global fiat currency, it requires a global defense budget of one trillion dollars to sustain, and many more trillions to establish, clearly not in the interest of China to attempt, nor necessary, for China in order to obain a much larger share of the reserve currency market amongst the central banks of the developing countries.
Keep the Yuan low at 6.50, and join the Bandung Conference, should do it all. Period.