China Center Quick Note: The RMB’s Rise -- IMF SDR Inclusion

Following a multiyear Chinese campaign to have the RMB added into the basket of currencies that underlie the Special Drawing Rights, the IMF relented on November 30, 2015, and formally adopted China’s currency on October 1, 2016. However, the adoption of the RMB into the SDR is not a game changer for international finance. Any increase in demand for China’s currency by central banks, at least at first, will likely be done to diversify currency reserves. We do not expect to see any significant changes in the structure of official global reserves. While the IMF has granted the RMB "reserve currency" status, it has not and cannot deem it a "safe haven" currency. That title is bequeathed by global investors, not institutions, and it is extremely unlikely that the RMB will inspire the prerequisite confidence anytime soon – if ever.

Interestingly, however, just before the October 2016 SDR adoption, the World Bank’s IBRD received PBoC’s blessing to issue SDR-denominated bonds in China’s interbank market. While not a part of the IMF SDR onboarding process, the two events are linked.