Yaun Becomes Reserve Currency

In late 2014 I predicted the immanent approval of the Yuan (also known as the renminbi) as an IMF SDR Reserve Currency.  For some strange reason, the vast majority of emerging market specialist did not see this inevitable move coming, which in my view merely reflects the fact that they are looking at the wrong underlying factors.

The USA is in effect almost US$100 trillion dollars in debt - if you add up federal government debt, corporate debt and household debt - and with much of the future belonging to China, it is only to be expected that such a move would be approved. Christine Laggard, IMF managing director, called the decision "an important milestone in the integration of the Chinese economy into the global financial system".  The turbulence in the Yuan in the last quarter of 2015 reflected the commitment of the Chinese Government to make the Yuan 'freely usable'.

The reality is, with US and EU Sanctions on Ukraine forcing Russia to trade east, is that despite of this approval, a vast number of countries around the world are already moving to Yuan based trade exchange, and with Iran, Turkey and even Egypt applying for membership of the Shanghai Cooperation Organization (SCO), SCO is rapidly becoming a significant trade block and has the potential to also emerge as the NATO of the east, in the decades to come.

The Yuan's entry into the IMF list takes effect on October 1, 2016.