Late Monday night the IMF announced the results of its five-yearly review of the composition and weightings of Special Drawing Rights. The surprise – or not – is that very little will change from January 1 2011: the IMF’s unit of account will be composed of 41.9% USD (down from the current 44%), 37.4% EUR (up from 34%), 11.3% GBP (much the same, currently 11%) and 9.4% JPY (currently 11%).
There had been calls for the inclusion of gold, CNY, RUB, AUD or CAD in SDRs over the past year.
The omission of the yuan was no great surprise. The Chinese authorities have accelerated the currency’s use lately and the CNH (yuan cleared through Hong Kong) market makes the yuan convertible after a fashion, but that is too recent to merit the yuan’s inclusion this time around.
Indeed, it seems that an expansion of SDR composition was never on the cards anyway. Bloomberg BusinessWeek reports an IMF spokesman as saying: “There was never any plan to revise the currencies at the latest five-year review.” The IMF always intended to stick to the procedure it has adhered to for the past decade: “the currencies included in the SDR are the four currencies issued by Fund members… whose exports of goods and services during the five-year period… had the largest value, and which have been determined by the Fund to be freely usable currencies… The weights assigned to these currencies continue to be based on the value of the exports of goods and services by the member (or by members included in a monetary union) issuing the currency and the amount of reserves denominated in the respective currencies that are held by other members of the IMF.”
There is no doubt that China qualifies by virtue of ‘exports of goods and services’ (Chinese exports in September were $145 billion, US exports were $154 billion, while the eurozone managed $187 billion), but the majority of those will have been priced in USD. The IMF’s Composition of official foreign exchange reserves (Cofer) figures for H1 2010 show that 96% of global allocated reserves were held in the four currencies of the SDR. When the yuan becomes truly usable, it will become a reserve currency in its own right. Its inclusion in the SDR will likely be automatic come January 1 2016.
In the meantime, the SDR will bear little relation to global trade volumes and, one suspects, even less to reserve holdings.
