Q4: Why did the IMF staff recommend the inclusion of the RMB into the SDR basket of currencies?
Since the last SDR review in 2010, the use of the RMB in international payments has risen substantially. In addition, RMB activity in foreign exchange markets covering two of the three major trading time zones has increased significantly and can accommodate transactions of the magnitude involved in IMF operations. This provided, in the judgment of staff, a basis for the RMB to be considered "widely used" to make payments for international transactions and "widely traded" in the principal exchange markets.
While operational issues are not formal requirements for SDR inclusion, staff's assessment that the IMF, its members, and other SDR users are now able to conduct operations in RMB without substantial impediments means there are reasonable assurances that IMF related operations can be conducted smoothly. This is the direct result of recent reforms implemented by the authorities, principally their decision to grant full access for official reserve managers and their agents to the onshore fixed-income and foreign exchange markets.
The authorities have also undertaken key reforms to advance their broader agenda to support the international use of the RMB and strengthen macro-financial stability, such as full liberalization of domestic interest rates, steps toward a more market-determined exchange rate, and implementation of a new cross-border interbank payment system.
Q5: Why did the Board support the inclusion of the RMB in the SDR basket?
The decision on whether the RMB should be determined a freely usable currency and included in the SDR basket rested with the IMF's Executive Board. Since there are no pre-set thresholds or benchmarks, the decision ultimately required policy judgment by the Executive Board, framed by the definition of freely usable under the IMF's Articles of Agreement and informed by quantitative indicators.
The report prepared by staff provided a rigorous technical assessment with a clear recommendation in order to inform Executive Directors.
The Board endorsed staff's analysis and recommendation to determine the RMB freely usable and include it in the SDR basket, as a fifth currency, along with the U.S. dollar, euro, Japanese yen and pound sterling, effective Oct. 1, 2016.
Q6: When will the RMB be officially included into the SDR basket?
The new basket including the RMB will take effect on Oct. 1, 2016.
The Executive Board previously extended the current basket to end-September 2016 in response to feedback from SDR users. The decision reflected the desire to avoid changes in the basket at the end of the calendar year (when trading volumes are low), facilitate the continued smooth functioning of SDR-related operations amid a higher than-usual level of uncertainty generated by the ongoing SDR review, and to allow sufficient lead time to adjust in the event that a new currency is added to the SDR basket.
Q7: What are the new weights of each currency in the SDR basket?
Under the new formula, the respective weights of the SDR currencies are: 41.73 percent for the U.S. dollar; 30.93 percent for euro; 10.92 percent for the Chinese renminbi; 8.33 percent for the Japanese yen; and 8.09 percent for the pound sterling. This basket of currencies will take effect on Oct. 1, 2016.
After these weights are used on Sept. 30, 2016 to establish the new fixed amounts of currencies that comprise the SDR basket, the share of each currency in the valuation of the SDR on any particular day going forward will depend on the exchange rates prevailing on that day.
