The renminbi and the SDR

5 October 2016

The IMF included the renminbi in the Special Drawing Right (SDR) basket effective 1 October. This is only a small step towards needed reform of the international monetary system but potentially a giant leap to signal that change is on its way. While the international economy has changed dramatically with the increasing importance of China and emerging markets, the international monetary system has remained broadly the same. If the system changes it will likely cause considerable upset. [...]

G20 and the SDR

26 July 2016

The G20 seems to find it increasingly difficult to reach common ground. The G20 communiqué of Chengdu of 24 July illustrates the blandness of commitments that have become commonplace. However, there is one interesting tangible measure. China is pushing the IMF's Special Drawing Right (SDR) and the G20 is seemingly obliging: "We support examination of the broader use of the SDR, such as […] the potential issuance of SDR-denominated bonds, as a way to enhance resilience." There has not been for decades probably more momentum around promoting the SDR. However, concrete options to aid SDR proliferation will remain highly contingent on actual SDR and private sector interests. [...]

International monetary dimension of Brexit

Conference—Reform of Global Financial Architecture: Short Term Measures and Long Term Goals

Chengdu, 22 July 2016

Brexit is a calamity. I believe it will diminish the U.K. This will lead to reducing further the role of sterling as an international currency. It will have adverse consequences for national policies but also for the international monetary system. Brexit therefore makes reforming the global financial architecture more urgent.[...]

SDR Substitution Fund

International Monetary Review, April 2016,Vol.3, No.2

30 April 2016

The inclusion of the renminbi into the IMF Special Drawing Right (SDR) basket was an important but mostly symbolic step. The relevance of the renminbi inclusion will come with the proliferation of the SDR. This will rest largely on the amount of SDRs outstanding. While the IMF is unlikely to offer greater SDR allocations amid resistance from key IMF member countries, China could embark on promoting the SDR through an SDR substitution fund. It would likely define the actual future of the SDR, may address incipient concerns about reserve shortages and could help propel the renminbi.

Historic perspectives on the purposes of the SDR

27 February 2016

The inclusion of the renminbi into the IMF Special Drawing Right (SDR) basket may signal the revival of the SDR. There have been considerable fluctuations in interest in the SDR. The IMF has at times embraced but most of the times largely ignored it. The SDR is not the outcome of a singular vision but rather the campaign of competing views among IMF member countries. It offers a glimpse about countries’ perspectives on the purposes of the SDR. With renewed interest in the SDR and shifting country influences at the IMF, those may offer valuable insights into the possible future direction of the SDR.

Newsletter November 2015—SDR valuation review decision

The SDR valuation review is now scheduled to be completed on 30 November and as expected is to provide for the inclusion of the renminbi. On 13 November, the IMF issued a press release indicating that the Managing Director supports inclusion of the renminbi in the SDR basket. The addition of the renminbi would be the first time the SDR basket will see a net increase in the number of currencies and may signal new momentum around the IMF’s reserve asset. However, the review also reveals the contentiousness of the SDR valuation framework. [...]


UBS European Conference 2015, London, 10 November 2015

Politicians are eager to stress the need for disruptive policies to bring desired change. One area where disruption is overdue is the global financial architecture. It has remained largely unreformed despite the fact it does not function as intended amid persistent large external imbalances and high exchange rate volatility resulting in considerable welfare losses. It is the IMF Special Drawing Right (SDR) that could offer needed disruption. [...]

SDRs and international currency diversification

LSE IDEAS and Konrad Adenauer Stiftung Workshop—The Emergence of a Multipolar Currency Regime, London, 28 October 2015

Earlier this month, at the IMF Annual Meetings in Lima, it was almost bewildering to witness how universal concerns were about the effect on the international economy of an increase in the policy rate of the Federal Reserve. Those concerns serve as a critical reminder of the old and well known dilemma of using national currencies to manage international liquidity. In my brief remarks I will focus on the IMF Special Drawing Rights (SDRs) arguing that SDRs could usefully serve as a framework to promote greater international currency diversification. [...]

IMF SDR valuation review: A test nobody can pass

9 August 2015

The IMF Executive Board deliberated on 29 July in informal session about next steps to conduct the 2015 quinquennial SDR valuation review. The IMF staff document guiding the review concentrates on determining whether the renminbi is a freely usable currency as necessary inclusion criterion. The review is conducted seemingly on technical considerations only on the basis of the existing inclusion criteria and does not propose revisiting those. This signals a bias against innovation. It seems to represent an extraordinary missed opportunity in light of actual and expected changes in the international monetary system. This may not be the IMF staff’s mistake. [...]

Time to transform the world's currency system

Financial Times, 22 June 2015

The pending IMF review of the SDR is much more than a rejigging of a currency basket. It is about serious steps towards the transformation of the international monetary system. […]

Internationalisation of currencies, capital account opening and the SDR basket

China Society for Finance and Banking, Hangzhou, 17 May 2014

Ladies and Gentlemen,

My remarks will focus on the SDR basket to reflect on the role it plays today and more importantly could play. The internationalisation of currencies, capital account opening and the SDR basket are naturally linked to one another. Capital account opening constitutes to some extent a necessary condition for currency internationalisation and major international currencies should normally be eligible as constituents of the SDR basket. Yet, one of the most salient features of the international economy is the fact that very few currencies have become truly international despite important and widespread capital account openings.[...]

40 years after the end of the dollar standard

27 September 2012

The upcoming 2012 IMF Annual Meetings are unlikely to produce much excitement. Even though persistent talks about currency wars and renewed fears of protectionism may cause severe disruptions to international trade and investments and are normally the sorts of issues that raise alarm bells with policy makers. Exactly 40 years ago at the 1972 IMF Annual Meetings, then U.S. treasury secretary George Shultz did shock the international community with a bold plan to reform the international monetary system and end the special role of the dollar as a reserve currency.[...]

2010 SDR basket review

16 November 2010

The IMF is working on a new SDR basket to take effect on January 1, 2011 with a decision on the new basket probably around mid- November. There are rumours that a revised SDR basket may comprise emerging markets currencies for the first time again since 1980. This would provide a strong signal that emerging markets currencies are on the rise and need to be taken seriously. It would also be illustrative of what the IMF aims to achieve with the SDRs. Following the recent promotion of SDRs through the large allocation of August 2009 and more importantly interest in the role of SDRs voiced by key emerging markets notably China and Russia, SDRs seem back from the wilderness. [...]

What role can the SDR play today?

15 May 2009

The IMF’s Special Drawing Right (SDR) is seeing an unexpected revival. Only in 2006, the Managing Director of the IMF concluded that there was not the necessary support from IMF member countries to seek issuance of SDRs, reflective of what had been a steady decline in the relevance of the SDR since the 1980s. [...]