Recently, which one of the following currencies has been proposed to be added to the basket of IMF's SDR?
Renminbi
Understanding IMF's SDR and Currency Basket
The question asks about a currency recently proposed for addition to the basket of currencies that make up the International Monetary Fund's (IMF) Special Drawing Rights (SDR).
Let's first understand what the SDR is. The SDR is an international reserve asset created by the IMF to supplement its member countries' official reserves. Its value is based on a basket of key international currencies. The composition of this basket is reviewed periodically by the IMF to ensure it reflects the relative importance of currencies in the world's trading and financial systems.
Significance of the SDR Currency Basket
Inclusion in the SDR basket is a significant milestone for a currency. It acknowledges the currency's growing role in global finance and trade and can increase its demand among central banks and international institutions.
Recent Addition to the SDR Basket
The IMF decided in November 2015 to add the Chinese currency, the Renminbi (RMB), to the SDR basket. This decision became effective on October 1, 2016. The inclusion was a recognition of China's increasing integration into the global financial system and the growing international use of the Renminbi.
Analyzing the Options
- Rouble (Russian Ruble): While the Rouble is used internationally, it has not been included or proposed for recent inclusion in the IMF's SDR basket.
- Rand (South African Rand): The Rand is an important currency in Africa, but it does not meet the criteria for inclusion in the SDR basket, which requires currencies to be widely used and freely usable.
- Indian Rupee: The Indian Rupee is a significant currency within India and is gaining international attention, but it has not been included or officially proposed for inclusion in the SDR basket as of the recent reviews.
- Renminbi (Chinese Yuan): As discussed, the Renminbi was officially added to the SDR basket effective October 1, 2016, following a decision in November 2015. This makes it the most recent addition among the options provided.
Composition of the SDR Basket (as of October 1, 2016)
Following the inclusion of the Renminbi, the SDR basket comprises the following currencies:
| Currency | Country/Region |
|---|---|
| US Dollar | United States |
| Euro | Euro Area |
| Japanese Yen | Japan |
| British Pound | United Kingdom |
| Renminbi | China |
Therefore, based on the recent changes to the SDR basket composition, the Renminbi is the currency that was proposed and subsequently added.
Revision Table: Key SDR Currency Basket Facts
| Term | Explanation |
|---|---|
| SDR | Special Drawing Rights, an international reserve asset created by the IMF. |
| SDR Basket | A set of major international currencies used to determine the value of the SDR. |
| Recent Addition | Renminbi (Chinese Yuan). |
| Effective Date of Renminbi Inclusion | October 1, 2016. |
Additional Information on IMF SDR and Currency Inclusion
The IMF reviews the SDR basket composition every five years, or earlier if warranted. The review process considers two main criteria for a currency to be included in the basket:
- The export criterion: The issuing country or union must be among the largest exporters of goods and services in the world over a five-year period.
- The "freely usable" criterion: The currency must be determined by the IMF to be "freely usable" - widely used to make payments for international transactions and widely traded in the principal exchange markets.
The inclusion of the Renminbi was a significant event, reflecting shifts in the global economic landscape and marking the first addition to the SDR basket since the Euro was introduced in 1999.
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