On the Inclusion of the Chinese Renminbi in the SDR Basket

Abstract

This paper studies the impact of a broadening of the SDR basket to the Chinese currency on the composition and volatility of the basket. Although, in the past, RMB inclusion would have had negligible impact due to its limited weight, a much more significant impact can be expected in the next decades, and more so if the Chinese currency is pegged to the US dollar. If the objective is to reinforce the attractiveness of the SDR as a unit of account and a store of value through more stability, then a broadening of the SDR to the RMB could be appropriate, provided some flexibility is introduced in the Chinese exchange-rate regime. This issue of flexibility is de facto more important than that of 'free usability' to make the SDR more stable, at least in the short and medium run.

Keywords: SDR, renminbi, international monetary system, foreign exchange volatility

JEL Classification: F310, F330