SDR inclusion unlikely to impact China's balance of payments

At the moment, the IMF has allocated about SDR 204 bn. This is equivalent to EUR 257 bn or USD 361 bn at current exchange rates. Even if the renminbi had a share of 10% in the SDR basket, the CNY purchases which the central banks would have to make to replicate their SDR positions would be lower than China's current capital outflows during a single quarter. 

Inclusion in the SDR basket as such will not have a meaningful effect on China's balance of payments. Any economic impact could only come from indirect effects. Many analysts use the words "signal" or "quality seal" when they speak or write about this topic - a choice of words which makes me recoil in alarm. 

After all, it is evident that a potential inclusion of the renminbi in the SDR basket would be a purely political concession by the IMF. Quite understandably, China's authorities are upset by the fact that the US prevented the implementation of the quota and voting rights reform of the IMF and that, as a consequence, China's influence in the fund is still disproportionately small. 

The IMF leaders are therefore obviously thinking about making concessions to Beijing, preferably of a type which the regime can sell as a success and which entail low economic costs. 

Moreover, the SDR have never been economically relevant, in contrast to what was expected at the time of their construction back in the 1960s. The watering-down of their construction principles is acceptable. Overall, China's regime might gain something to boast about at home. 

"However, any other, tangible effects are unlikely. Why should anyone buy more renminbi, just because political games in Washington have led to the RMB's inclusion in the SDR basket? Admittedly, if a sufficiently large number of analysts repeat the Chinese propaganda, some investors may believe it after all. But such an effect's sustainability is doubtful", says Commerzbank.