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Nov. 14 Update: On Friday, Nov. 13 the International Monetary Fund made a recommendation that virtually guarantees a yuan reserve currency.
IMF head Christine Lagarde said the yuan now "meets the requirements to be a 'freely usable' currency.
Original story follows:
It's almost certain a yuan reserve currency will become reality 11 months from now, triggering a foreign currency shift of as much as $2 trillion – an existential threat to the U.S. dollar's status as the world's primary reserve currency.
Last week, Bloomberg reported that International Monetary Fund (IMF) officials have told Chinese officials that the yuan will join the organization's basket of reserve currencies "soon."
Sources told Bloomberg that Chinese officials are so sure the IMF will decide in their favor that they're already drafting statements to celebrate it.
The IMF board will meet in November to make a final yuan reserve currency decision. If it decides in favor of China, the yuan will join its basket of currencies, known as Special Drawing Rights (SDR), at the end of September 2016.
The last time the IMF conducted a review of the SDR basket, in 2010, it decided that the yuan was not yet "freely usable."
But since then, the People's Bank of China has exerted great effort to liberalize its yuan policies to make it trade more like other major world currencies. In fact, China has sought yuan reserve currency status for decades.
Inclusion in the SDR basket by itself isn't a huge deal – it's mainly a system of global liquidity that gives members the right to obtain currencies in the basket to meet balance-of-payment needs. They're also held as an emergency buffer in the event any one currency fails and the nation in question still needs to buy stuff in the world's market place – like food and fuel, for example.
The total value of the SDR basket is only about $280 billion, not a large sum compared to global foreign exchange reserves of about $11.46 trillion.
But as an SDR world reserve currency, the yuan would have special status. After all, there are only four other currencies in the IMF basket – the U.S. dollar, the Japanese yen, the euro, and the British pound sterling.
Suddenly the yuan will become a disruptive force…
About the Author
Dave has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
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The disruption will come, because the Chinese have been buying gold to back their yuan. No other country in the reserve can tell the other countries what is backing their money. All the good faith and credit does not hold water when the United States is 20 Trillion (with a capital T) in debt and the president and Congress cannot see the trees before the forest. In other words we have an absentee President and Congress who you can only conclude they are not the sharpest knives in the drawer or better put they have a lack of grey matter… Read more »
a stronger Yuan and a weaker USD because of China becoming a member of the IMF, will hurt China as the biggest creditor to the US in USD. The advantage for China joining the international basket of currencies is still vague at least for the beginning 5 years.. is there any publication/article written by an expert and experience in currencies which analyse and list down the advantages for china ? many thanks , Roi Ramli
The IMF and World Bank have caused so much harm using the U.S. Dollar. The West is losing out on its world exploitation, debt slavery and
guaranteed profits for whatever financial/resources gain to dominate. It must give way. It is sad to realize the financial industries' control lof U.S. has destroyed Democracy here. The next step will be bombing any resisting country back to the Stone Age for "national security" and sending our young people to enforce those aims…
The US QE ad infinitum, and their inability to return even a relatively small tonnage of the German republic's gold bullion back to them immediately, surely shows that there is something very wrong with the US banking system? Perhaps the already high fractional reserve banking system is now completely out of control, and inextricably tied up like a tangled fishing line with derivative instruments which cannot be effectively marked to any market, and even if they could, are those counter-parties worth anything at all ?
The future of the dollar and the yuan appears to be clear. What are some good indicators to help avoid loosing wealth that is in the form of dollars? – dollar value, gold value, yuan value? Is purchase of gold the most appropriate hedge?
Am I correct in thinking gold will go up in value when the dollar goes down?
……….hanging on every word!
……..dollar decline now inevitable