Simon Black – They called it a “historic moment in international finance”.

And so with great fanfare, the International Monetary Fund (IMF) announced yesterday that they would be including China’s renminbi in the basket of currencies that comprise their institutional monetary unit, the SDR.

The IMF invented the SDR back in 1969 to be used as a foreign exchange reserve held by governments and central banks.

Now, the SDR is nothing fancy. It’s really only something that economists and central bankers fawn over, with no real impact on anyone else.

Even the IMF considers the SDR’s role in international financial markets to be “insignificant”.

But that’s not all that makes the IMFs decision completely irrelevant.

For starters, just look at how they reconfigured the percentage weights of other currencies in the SDR basket to make room for the renminbi.

The British pound’s weight in the SDR will fall from 11% to 8%, the Japanese Yen from 9% to 8%, the Euro from 37% to 31%.

Conspicuously absent from this list of demotions is the United States dollar, which maintains a rock-solid 42% weighting.

In doing this, the IMF proves itself to be nothing more than a lapdog of the US.

More importantly, who cares about the SDR?

The market has already been rapidly adopting the renminbi for years.

It is today already the fourth most widely used currency in all international payments. And the renminbi ranks second for global issuances in letters of credit. Continue reading →