On October 1 the Chinese Renminbi will be officially admitted into the Special Drawing Rights (SDR) Bond’s issued and held by the IMF.
This could be a huge step in bolstering the already strong Chinese currency, but its other implications could be much bigger on a global scale.
Until now, these SDR’s only had 4 currencies in their basket; the US Dollar, the British Pound, the Japanese Yen and the Euro.
The significance of this is profound, with the Yaun gaining strength as a global currency, many are pushing to make the Yaun the global reserve currency. China does not want to see their currency become the global reserve currency because of the trade deficits it would have to run.
So the Peoples Bank of China and the IMF have come up with a scheme that could put the SDR’s into the hands of average investors, and even eventually used as currency.
China is being used as a test to roll out this unique offering, and if it is successful could prove to be the next step in a global reserve currency against a weakening dollar.