The move to confer reserve status on China’s currency is part of a process that could lead to nearly $3tn being injected into the country’s bond and equity markets. We’ve taken a close look at where the money could come from.
On its own, the inclusion of the renminbi in the International Monetary Fund’s basket of reserve currencies, known as the Special Drawing Right (SDR), could lead to capital flows of $30bn into China within the next 12 months.
These will come from countries that receive IMF funding. IMF programs use SDR as a unit of account, and countries that benefit from these programs need to hedge their liabilities in the underlying SDR currencies. The SDR basket is equivalent to $280bn, and the IMF has announced that the RMB will account for 10.92 per cent of the basket—hence the $30bn.