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1 1 (June 28, 2016)

handle is hein.crs/govcdut0001 and id is 1 raw text is: FF.ri E~$~ & Updated June 28, 2016 The IMF's Special Drawing Right and China's Renminbi During 2015, The International Monetary Fund (IMF) reviewed the basket of currencies used to determine the value of the Special Drawing Right (SDR), the international reserve asset created and used by the IMF. Following a recommendation by IMF staff, the IMF Executive Board decided on November 30, 2015 to include the Chinese RMB in the SDR basket as a fifth currency, alongside the U.S. dollar, euro, British pound, and Japanese yen. The decision will be effective on October 1, 2016. The SDR is an international reserve asset comprised of a basket of major currencies. Created by the IMF in 1969, SDRs are allocated to IMF members to supplement their existing official reserves. In addition to its role as an international reserve asset, the SDR serves as the unit of account for the IMF and a number of other international organizations. Member country contributions to the IMF, as well as IMF financial assistance to member countries, are valued in SDRs. All 189 IMF member countries, the IMF itself, and various international organizations utilize SDRs. Although not an international currency in and of itself, SDRs can be exchanged for hard currency and can be used in international transactions by central banks and other monetary authorities. Private sector holding of SDRs is prohibited. IMF members receive interest on their SDR holdings and pay charges on their cumulative allocations of SDRs at the same interest rate. The SDR interest rate is a weighted average of 3-month sovereign bill rates of these currencies. SDRs represent a small percentage of global foreign reserves. Total currency reserves were $10.94 trillion at the end of December 2015, according to most recent IMF figures. Of the countries that report the currency composition of their foreign exchange reserves (allocated reserves), the U.S. dollar accounts for 64.1% percent of the total. By contrast, there are currently around SDR 204.1 billion outstanding (around $289 billion dollars). Thus, SDRs comprise 2.6% of total foreign exchange reserves, equivalent to the percentage of global foreign exchange reserves held in the Canadian dollar and the Australian dollar. Since their creation in 1969, the total amount of SDRs has not exceeded 7% of total foreign exchange reserves. §,2)R Vwa&6ona ,..zkd Revie w In 2000, the IMF Executive Board adapted criteria for determining the SDR basket of currencies. It included four currencies issued by members or currency unions whose exports of goods and services had the largest value over a five-year period and were determined by the IMF to be freely usable. The value of the SDR is currently equal to a weighted basket of four currencies (U.S. dollar; euro; Japanese yen; British pound sterling). The SDR basket is revaluated every five years. Currently, one SDR is equivalent to around $1.42. In its 2015 review, the IMF assigned a 10.92% weight to the RMB in the new SDR basket, which will go into effect on October 1, 2016 (Figure 2). The next review of the SDR basket is to be completed by September 30, 2021. Figure I. ComDosition of the SDR Basket Source: International Monetary Fund The 2015 SDR review consisted of two components: (1) a technical review by IMF staff to determine whether the RMB meets the SDR criteria; and (2) a vote by the IMF Executive Board. Decisions to change the valuation method are based on a 70% majority vote. Thus, the United States with 16.74% of the total voting power could not prevent the RMB's inclusion in the SDR basket (if it so chose) without the support of other IMF members. Export Criterion: The level of a country's exports provides an initial test of its currency's potential for inclusion in the SDR basket. This criterion ensures that the SDR basket comprises currencies that play a central role in the global economy. Freely Usable Criterion: In addition to meeting the export criterion, a country's currency must be freely usable, meaning that it is widely used to make payments for international transactions, and is widely traded in principal exchange markets. According to the IMF, the concept of a freely usable currency concerns the actual international use and trading of currencies, and is different from whether a gognpo 'popmm ggmm g 'S a X

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