The SDR is irrelevant as an international reserve tool as is almost any aspect of the IMF in the global economy. This is from the Guardian which notoriously in love with anything communist or anti-U.S. The only statement with any ring of understanding about this or anything to do with economics is this:
“Given the heavy-handed government intervention in Chinese markets of late, from the currency devaluation to disallowing institutions from selling shares, there are fears the IMF may be bending the rules to accommodate the world’s second largest economy into its special drawing rights.”
Well, this is true as such that it was based on a fantasy:
Beijing has long hoped the yuan would be added to the small list of currencies that help set the value of SDRs, an international reserve asset that was created by the IMF to supplement its member countries’ official reserves.
This also true:
Experts say a vote to include the yuan in the SDR is a big political victory for China.
Which should also indicate that most of the article is wrong and the first quote that actually ends the article is rings true. This is because the only people that think the SDR is relevant is the IMF, Chinese leaders and Guardians readers. It was a political decision. The experts are right but the Guardian goes on to explain why it is important in economics terms anyways and gets nearly everything wrong:
China hopes this stamp of approval will increase the yuan’s desirability as a reserve currency for investors and undermine the hegemony of the dollar as a global reserve currency.
Central Banks will hold reserves in currencies that are the result of either capital inflows or outflows and trade in goods and services. It mind boggling that any investor would hold a worthless pretend "reserve". No trade is conducted or investment conducted in SDRs. I would say more but I don't want to get bogged down is silly few sentences.
Wait I found another actual expert that rebuts the premise of the article:
Currency strategists at RBC Capital Markets think that the inclusion of the yuan will mean more politically than financially. “More than anything, it is a symbolic and political milestone in China’s long path to renminbi internationalisation,” they wrote in a research note before the widely expected decision to add the yuan to the basket.
Haha.
Wait another expert says it was just a political decision:
Getting the yuan in the SDR basket is a big achievement for the Chinese government, agrees Prof Kamel Mellahi at Warwick business school. He sees the move as a vote of confidence in the economic and financial reforms under way in China. But authorities, including the People’s Bank of China (PBOC) central bank, still have more work to do.
Ok, there is a few direct quotes from the IMF that are technically correct but they are irrelevent. This one is false:
Not long after the creation of the SDR, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. But the SDR system has become more important again recently by supplementing member countries’ official reserves during the credit crunch and global financial crisis.
Ever see the movie Snakes on A Plane? I didn't but I know what The Snake was and my advisor was also an economist in Treasury during the Bretton Woods collapse. It was extremely radical idea to float the Dollar and even I forget that sometimes when talking about Nixon. Most countries tried to avoid that fate and failed miserably. See Paul Krugman 1st generation crisis model. I feel dirty for advising anybody to read Paul Krugman. I need to shower.
Well, you guys can figure out any more.
