Chinese RMB added to IMF SDR Basket

It's been a busy week here at FDI and while we didn't miss the monumental news this week, we also haven't commented on it yet.  On 12/1 the IMF announced that they would add a fifth currency to their SDR (Special Drawing Rights), the Chinese RMB.  While this won't have major implications in the valuation of the currency (the SDR does not hold significant amounts of currency) at least not significant enough to affect major swings in free floating currency valuations, it has a great influence on the world view of the stability of a currency.  

The biggest losers in the makeup of the SDR basket (as seen below in the pie charts) are the Euro and the British Pound.  Perhaps somewhat surprisingly, the Chinese RMB will make up 10.92% of the SDR basket.   

This has been what the Chinese government has been working towards over the last 6+ months and why there have been swings in currency valuations for the Chinese RMB as the government has moved to a more free-floating, open market policy.  It was also a scramble to the end, if they had not been approved during this time frame, the next opportunity would have been 2020 (after the current term of President Xi).  Make no mistake about it, this is a significant step forward in the progress of building China into a major international economic player.

The make up of the SDR will have the following changes:

 

Current SDR Basket

New Makeup in 2016