Yuan should be added to SDR basket

HONG KONG – The Chinese yuan should be added to the basket of currencies that underpin the IMF’s special drawing right next year, as a step toward creation of a global reserve currency, Nobel Prize laureate and architect of the euro Robert Mundell said yesterday.

He endorsed Chinese central bank governor Zhou Xiaochuan’s call last month for the US dollar to be replaced as the world’s main reserve currency by the IMF’s Special Drawing Right (SDR), and said volatile exchange rates had helped cause the global financial crisis last September. It’s time for a change. The Chinese yuan is now the third most important currency in the world … arguably more important than the (Japanese) yen, depending on how you measure it,’ Mundell told a news conference in Hong Kong. ‘I believe that in 2010, the yuan should be added to the SDR.’The Columbia University professor won the Nobel Prize for Economics in 1999 and is often credited as the intellectual father of the euro for his research on optimal currency zones.The IMF’s SDR is reviewed every five years and the next review is due late next year. Mundell suggested reducing the dollar’s SDR weighting to 40 per cent, from 45 per cent; keeping the euro weighting at 29 per cent and the Japanese yen’s 15 per cent weighting, but dropping the pound sterling altogether or cutting its weighting to five per cent, from 11 per cent. The yuan would take up the rest, he said, even though it is not fully convertible.The strength of the yuan excess demand, which is pushing the yuan higher and forcing China to intervene and buy foreign reserves to keep it in check would compensate for the lack of convertibility, he added.Under Mundell’s view of an international monetary system based on a global reserve currency rather than the US dollar, the yuan’s convertibility is not such an important issue so long as the Chinese currency remains loosely aligned to the US dollar, he said. – Nampa-Reuters