“(Reuters) – China’s yuan and its emerging economy peers could become reserve currencies sooner than many investors think, as some experts reckon the hurdles of convertibility and policymaker inertia are easily negotiated.
China and other countries from the BRICS nations — Brazil, Russia, India and South Africa — would like their currencies to make up part of the International Monetary Fund’s special drawing right (SDR), which is used as a reserve asset.
Chinese officials have asserted that widening the SDR basket would heighten the yuan’s profile as a potential reserve currency, with some experts seeing the SDR growing into a partial substitute for the dollar.
The SDR, now composed of just U.S. dollars, euros, British pounds and Japanese yen, broadly reflects the composition of the $9 trillion held in global central bank reserves.
The SDR makes up 4 percent of those reserves due to allocations by the IMF, the most recent being in 2009.
To the extent that the SDR reflects these holdings, any change to its make-up could help significantly rebalance those reserve savings.
The issue of entry into the SDR has been debated at recent BRICS and G20 meetings, as part of discussions on reform of the international monetary system.
Dampening hopes for an early widening of reserve currencies, the IMF refrained from adding any currencies to the SDR in a review at the end of last year, and another formal review of the SDR basket is not due until 2015.”
If you enjoy the content at iBankCoin, please follow us on Twitter
