Recently, which one of the following currencies has been proposed to be added to the basket of IMF’s SDR?
Contents14
- ARouble
- BRand
- CIndian Rupee
- DRenminbi
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Answer: (D) Renminbi
Answer: (d) Renminbi
China's Renminbi (also called Yuan) was added to the IMF's SDR basket.
What is SDR?
Special Drawing Rights - an artificial international reserve asset created by IMF in 1969.
It is a 'basket' of major currencies for international accounting.
SDR basket (after October 1, 2016):
- US Dollar (41.73%)
- Euro (30.93%)
- Chinese Renminbi (10.92% - NEW)
- Japanese Yen (8.33%)
- British Pound (8.09%).
Why Renminbi was added:
China is world's second-largest economy; the currency met IMF's 'freely usable' criteria.
Why not others?
- (a) Rouble (Russia) - Not in SDR.
- (b) Rand (South Africa) - Not in SDR.
- (c) Indian Rupee - Not yet included; not considered 'freely usable' enough.
This was big news as recognition of China's growing economic power.
The Chinese Renminbi became the fifth currency in the IMF's Special Drawing Rights basket in October 2016, joining the US Dollar, Euro, Japanese Yen, and British Pound.
This addition was major international news in 2015-2016 as it formally recognized China as the world's second-largest economy and marked the first change to the SDR basket since 1999.
The question tests knowledge of which major currencies qualify as 'freely usable' international reserves according to IMF criteria.
Special Drawing Rights (SDR)
Indian Economy SDR IMF basket
Special Drawing Rights: IMF's Reserve Asset & Currency Basket
SDR = artificial international reserve asset created by IMF in 1969
Current basket: 5 currencies - USD, Euro, Renminbi, Yen, Pound
Chinese Renminbi added in October 2016 - first new currency in 35 years
Value determined by weighted average of basket currencies
What is SDR
Special Drawing Rights are an artificial international reserve asset created by the IMF in 1969 to supplement member countries' official reserves. Think of SDR as 'international money' that exists only on paper - it's not a physical currency but a claim on the freely usable currencies of IMF members.
SDR Basket Composition
Currency | Weight (%) | Added Year | Country |
|---|---|---|---|
US Dollar | 41.73% | 1969 | United States |
Euro | 30.93% | 1999 | Eurozone |
Chinese Renminbi | 10.92% | 2016 | China |
Japanese Yen | 8.33% | 1973 | Japan |
British Pound | 8.09% | 1969 | United Kingdom |
Why Renminbi Was Added
China = world's second-largest economy - economic size justifies inclusion
'Freely usable' criteria met - currency widely used in international trade and payments
First new SDR currency in 35 years - previous addition was Euro in 1999
Recognition of China's growing economic power in global financial system
Question Context
This 2016 question tested knowledge of the historic addition of Chinese Renminbi to the SDR basket. The other options - Rouble (Russia), Rand (South Africa), and Indian Rupee - are not part of the SDR basket, making Renminbi the clear correct answer.
Don't confuse Renminbi with Yuan - same currency, different names (Renminbi = official name, Yuan = unit)
Indian Rupee not in SDR despite India's large economy - doesn't meet 'freely usable' criteria yet
Only 5 currencies in SDR - many major economies like Russia, Brazil excluded
Euro replaced Deutsche Mark and French Franc - basket size remained same
IMF Currency Selection Criteria
Indian Economy freely usable criteria
IMF Criteria for SDR Basket Inclusion
Two main criteria: export volume and 'freely usable' status
'Freely usable' = widely used and traded in international transactions
Reviewed every 5 years by IMF Executive Board
SDR Inclusion Requirements
Criterion | Definition | Assessment Method |
|---|---|---|
Export Criterion | Country must be among largest exporters | Share of world exports of goods & services |
Freely Usable | Currency widely used & traded internationally | International reserves, forex trading, international banking, international debt securities |
Review Process | Assessment every 5 years | IMF Executive Board decision |
Why Other Currencies Excluded
Russian Rouble - limited international usage, capital controls restrict 'free usability'
South African Rand - economy too small, insufficient global trade volume
Indian Rupee - despite large economy, not freely convertible on capital account
Most currencies fail 'freely usable' test - requires deep, liquid international markets
Large economy ≠ SDR inclusion - India, Brazil have big economies but currencies not included
'Freely usable' is technical term - means internationally traded, not just convertible
Export size matters - must be among top global exporters, not just importers
Chinese Renminbi Internationalization
Indian Economy Renminbi Yuan China
China's Currency Internationalization Strategy
Renminbi = official name, Yuan = unit - like Rupee vs Paisa relationship
Gradual liberalization since 2009 - offshore markets, bilateral swaps, trade settlement
SDR inclusion in 2016 = major milestone in internationalization journey
Renminbi Internationalization Timeline
%%{init: {"flowchart": {"wrappingWidth": 460}}}%%
flowchart TD
s1["`**2009**
**Cross-border trade settlement** in Renminbi launched`"]
s2["`**2010-2014**
**Offshore Renminbi markets** developed (Hong Kong, London, Singapore)`"]
s3["`**2015**
**IMF declares Renminbi 'freely usable'** - key milestone`"]
s4["`**2016**
**Added to SDR basket** with 10.92% weight`"]
s5["`**Present**
**World's 5th most used currency** in international payments`"]
s1 --> s2
s2 --> s3
s3 --> s4
s4 --> s5Internationalization Tools
Bilateral currency swap agreements - over 30 countries can trade directly in Renminbi
Offshore Renminbi (CNH) markets - Hong Kong, London, Singapore allow foreign Renminbi trading
Belt and Road Initiative - promotes Renminbi use in infrastructure projects across Asia-Africa
Renminbi-denominated bonds (Panda Bonds) - foreign entities can raise funds in Chinese currency
Renminbi ≠ Yuan - Renminbi is currency name, Yuan is unit (like saying 'Dollar' vs 'USD')
Still capital account restrictions - despite SDR inclusion, full convertibility not achieved
Different from crypto or gold - Renminbi internationalization is about fiat currency acceptance
Other Major Currencies & SDR Status
Indian Economy Rouble Rand Indian Rupee
Why Major Currencies Remain Outside SDR Basket
Indian Rupee - large economy but not fully convertible on capital account
Russian Rouble - limited by sanctions and capital controls
South African Rand - economy too small for global reserve currency status
Major Currencies vs SDR Criteria
Currency | Country | Economy Size | Export Rank | Freely Usable? | Main Barrier |
|---|---|---|---|---|---|
Indian Rupee | India | 5th largest | Top 10 | No | Capital account restrictions |
Russian Rouble | Russia | 11th largest | Top 15 | No | Sanctions, capital controls |
South African Rand | South Africa | 35th largest | Outside top 20 | Partial | Economy too small |
Brazilian Real | Brazil | 9th largest | Top 20 | No | High volatility, controls |
Indian Rupee Specific Challenges
Capital Account Convertibility incomplete - RBI maintains controls on capital flows
Rupee trading limited - most international transactions still require USD conversion
Forex market depth - INR forex markets less liquid compared to major currencies
Future potential exists - India's growing economy may eventually qualify Rupee for SDR
Large economy ≠ SDR currency - India, Brazil economies huge but currencies not included
Don't confuse convertibility types - current account convertible ≠ capital account convertible
Reserve currency status different from SDR - USD dominates reserves, but SDR has 5 currencies