The redistribution of the main SDR basket will be delayed until next year. Professor Hermann Matisse (UGent and VUB) says: “The crucial question is how much the share of the Chinese currency in the basket will rise and what currency it will pay.”
Special Drawing Rights (SDR) or Special Drawing Rights are a type of international reserve currency. It is managed by the main specialized organization of the United Nations, the International Monetary Fund (IMF). After the Bretton Woods Agreement ended in August 1971, SDRs were introduced to provide some direction for monetary affairs in this world. In the early stages, the value of the SDR was linked to a basket of major currencies: the US dollar, the Japanese yen, the German mark, the French franc, and the British pound sterling.
The U.S. currency was at the top with a 39 to 42 percent stake in the basket. A little further away was the Deutsche Mark with a stake of 19 to 21 per cent. The composition of the basket was limited to five of the seven countries of the Group of Seven (G7). The Italian lira and the Canadian dollar were not part of the SDR basket. From 1999, the euro replaced the mark and the French franc with a 32 percent stake, or the sum of the two old European currencies.
Every five years, the basket should be revised on the basis of two factors: the country’s share in global trade and the global use of the national currency in international financial transactions.
The last commitment of the SDR basket of four currencies (the dollar, the pound, the yen, and the euro) was in 2011. The dollar remained the main currency at 41.9 percent (2.1 percent lower than it was in 2006), and the euro had a share of 37.4 percent. (+ 3.4%), the pound 11.3% (+ 0.3%) and the yen 9.4% (-1.6%). In 2016, the debate arose to allow the Chinese yuan to enter the basket. This was eventually allowed, due to the People’s Republic of China’s large share in world trade. With the economic regions of Macau and Hong Kong, the communist country has a greater share in world trade than the United States (US 11.7% and China 13.3%). Regarding the second parameter, no argument can be found for allowing China. The yuan is not freely convertible, and China is a state-led economy and the status of the National Bank of China is comparable to the branch of the Communist Party.
The split in 2016, when European Central Bank President Lagarde was still head of the International Monetary Fund, was a breakdown of the euro. The dollar gained 41.73% (-0.17% compared to 2011) in the SDR basket, the euro took 30.93% (-6.47%), the yuan took 10.92% as an entry-level, the yen fell to 8.33% (-1.07%)) and the pound Still well versus 8.09% (-3.21%).
Next agreement on monetary power on the planet: Summer 2022.
New members?
Who can still join? One should look at the list of countries that are part of the G7, countries that have a large share of global trade and countries that have a major financial center whose currency is used at the global level. Only Canada remained in the first group. But is the Canadian dollar important enough to be part of the basket? Canada is the eleventh country in world trade. South Korea ranks eighth in world trade, Singapore ranks twelfth and India ranks thirteenth. The latter country, in particular, has an enormous population, but it does not have a very strong financial reputation. This leaves Switzerland a huge financial center, but it is difficult to sell a country of 10 million people into the SDR basket.
No countries will be removed from the basket either. The UK remains a major player with London as its financial center and gold, which is a disenfranchised country on the United Nations Security Council and a permanent member of the Bank for International Settlements.
The discussion will focus on the current distribution of values in the five-member SDR basket. In principle, the redistribution process should continue at this stage. But the executive board (24) managers (including the Benelux) of the International Monetary Fund decided on March 5 to postpone the entry into force of the new distribution from October 1, 2021 to August 1, 2022. The main reasons for the ten-month delay in deciding on monetary power in this world are the Covid epidemic – 19 And the fact that economic markets have not been able to function optimally. The question is whether this will be the case in 2022.
The new distribution will look at the state of countries ’currencies and their share in world trade. In addition, the Americans, the British and the Chinese have conducted a more effective vaccination campaign than the Eurozone. The economic and budgetary costs of the epidemic also appear to be the highest in the eurozone. Tensions between the United States and China will also play a role in the new partition. In this respect, there is no difference between the Biden administration and the Trump administration. The crucial question is to what extent the share of the Chinese currency in the basket will increase and which currency will be paid for as the share decreases.
The grace period falls in the middle of a crucial European electoral period. Germany will go to the polls in September 2021 and France in May 2022. In succession to Lagarde at the International Monetary Fund, Europe did not pick anyone from the eurozone and it wasn’t exactly the smartest move on the old continent. Next agreement on monetary power on the planet: Summer 2022.
Special Drawing Rights (SDR) or Special Drawing Rights are a type of international reserve currency. It is managed by the main specialized organization of the United Nations, the International Monetary Fund (IMF). After the end of the Bretton Woods Agreement in August 1971, SDRs were introduced to provide some direction for monetary affairs in this world. In the early stages, the value of the SDR was linked to a basket of major currencies: the US dollar, the Japanese yen, the German mark, the French franc, and the British pound sterling. The U.S. currency was at the top with a 39 to 42 percent stake in the basket. A little further away was the Deutsche Mark with a stake of 19 to 21 per cent. The composition of the basket was limited to five of the seven countries of the Group of Seven (G7). The Italian lira and the Canadian dollar were not part of the SDR basket. From 1999, the euro replaced the mark and the French franc with a 32 percent stake, or the sum of the two old European currencies. Every five years, the basket should be reviewed based on two criteria: the country’s share in global trade and the global use of the national currency in international financial transactions. The dollar, the pound, the yen, and the euro) was in 2011. The dollar remained the most important currency at 41.9 percent (2.1 percent less than in 2006), the share of the euro was 37.4 percent (+ 3.4 percent), and the pound was 11.3 percent (+ 0.3 percent). Percent) and the yen 9.4 percent (-1.6 percent). In 2016, the debate arose to allow the Chinese yuan to enter the basket. This was eventually allowed, due to the People’s Republic of China’s large share in world trade. With the economic regions of Macau and Hong Kong, the communist country has a greater share in world trade than the United States (US 11.7% and China 13.3%). Regarding the second parameter, no argument can be found for allowing China. The yuan is not freely convertible, and China is a state-led economy and the status of the National Bank of China is comparable to the branch of the Communist Party. The split in 2016, when European Central Bank President Lagarde was still head of the International Monetary Fund, was a breakdown of the euro. The dollar gained 41.73% (-0.17% compared to 2011) in the SDR basket, the euro took 30.93% (-6.47%), the yuan took 10.92% as an entry-level, the yen fell to 8.33% (-1.07%)) and the pound Still well versus 8.09% (-3.21%). Who can still join? One should look at the list of countries that are part of the G7, countries that have a large share of global trade and countries that have a major financial center whose currency is used at the global level. Only Canada remained in the first group. But is the Canadian dollar important enough to be part of the basket? Canada is the eleventh country in world trade. South Korea ranks eighth in world trade, Singapore ranks twelfth and India ranks thirteenth. The latter country, in particular, has an enormous population, but it does not have a very strong financial reputation. This leaves Switzerland a huge financial center, but it is hard to sell a country of 10 million people into the SDR basket. No country will be removed from the basket either. The United Kingdom remains a major player with London as its financial center and gold, an opposition country to the United Nations Security Council and a permanent member of the Bank for International Settlements, and discussions will focus on the current distribution of values in the SDR basket. With five members. In principle, the redistribution process should continue at this stage. But the Executive Board (24 directors, including the Benelux) of the International Monetary Fund decided on March 5 to postpone the entry into force of the new distribution from October 1, 2021, to August 1, 2022. The main reasons for the ten-month delay in deciding on monetary power in this world is the Covid epidemic. 19-The fact that economic markets have not been able to function optimally. The question is whether this will be the case in 2022. The new distribution will look at the state of countries ’currencies and their share in global trade. In addition, the Americans, the British and the Chinese have conducted a more effective vaccination campaign than the Eurozone. The economic and budgetary costs of the epidemic also appear to be the highest in the eurozone. Tensions between the United States and China will also play a role in the new partition. In this respect, there is no difference between the Biden administration and the Trump administration. The crucial question is to what extent the share of the Chinese currency in the basket will increase and which currency will be paid for as the share decreases. The grace period falls in the middle of a crucial European election period. Germany will go to the polls in September 2021 and France in May 2022. In succession to Lagarde at the International Monetary Fund, Europe did not pick anyone from the eurozone and it wasn’t exactly the smartest move on the old continent. Next agreement on monetary power on the planet: Summer 2022.
