Forex Marketz Daily Forex News – Fully Markets Update
Points to consider in this Forex market:
- The International Monetary Fund (IMF) supports the Yuan’s inclusion into the SDR basket of world currencies.
- This means the yuan will trade alongside the world’s leading reserve currencies.
- Final decision is on November 30.
China’s Yuan might very well become the next global reserve currency as the IMF is seriously considering adding China’s currency to the Special Drawing Rights (SDR). The IMF Managing Director Christine Lagarde issued a statement supporting her staff to include the currency of the world’s second largest economy into the basket of global reserve currencies. Confirmation will occur today, November 30, at an undisclosed time.
What does this mean? The Yuan inclusion will carry significant near-term implications to the world’s financial and Forex markets. The decision will not take affect until September 2016. The entire basket is now valued at $300 billion. A drop in the bucket of the $1.45 trillion transacted value of the world’s top 3 reserve currencies. These are the US Dollar, the Yen and the euro. This means that capital flows to be triggered by the Yuan will be very small. Even if the currency gets a significant share of the basket.
The symbolism is more important here. This should help build confidence in the yuan as a reserve asset and should significantly increase its international use. More importantly, this will deliver a huge victory to pro reformists at the People’s Bank of China (PBOC). They are trying to bring China’s financial system up to leading world standards as they pave the way to financial modernization in China. In time this could mean that all of China’s financial markets become open to cross-border capital flows. This could also mean a freely traded offshore USD/CNH and unify the tightly controlled USD/CNY. The yuan is well on its way to becoming the world’s next global reserve currency.
