Last month China and France announced that they had agreed to form a taskforce to discuss the conditions under which the renminbi could become part of the IMF’s special drawing rights (SDR). This could have long-term implications for global currency markets. That task force will present its proposal ahead of the summit of leaders at the G20 in Cannes in November.
The development of a taskforce is important for two reasons. First, it recognizes that the world’s incumbent reserve currency, the US dollar, is no longer seen as being an unquestionable store of value. Secondly, the SDR basket would offer large creditor countries, such as China, an opportunity to reduce their reliance on the US as a destination to invest their vast trade surpluses.
Although there are several variables that determine the weights accorded to the SDR, the main one is international trade. As the weightings...
