What are Special Drawing Rights? What are the requirements for SDR basket inclusion?How will Renminbi's addition impact India and other countries?

Published: March 17, 2016

Special Drawing Rights which were created by IMF in 1969 are international type of monetary reserve currency, which operate as a supplement to the existing reserves of member countries. SDRs were created with an aim to limit the use of gold and dollars as the sole means of settling international accounts. SDRs are used by the IMF to give emergency loans to countries and are sometimes used to supplement current account deficit for different economies.
There are two formal requirements for SDR basket inclusions are: being large exporter and the currency must be freely usable.
With Renminbi’s inclusion in reserve currencies, India as well as other countrieswould have to use Yuan as a medium of exchange for imports from China.India like other countries will have the option of holding forex reserves in Yuan. Indian importers may be exposed to the Yuan- rupee exchange rate risk. China may demand the Indian traders to pay in Yuan.
Therefore, Yuans inclusion would change the entire scenario at the global front where the dollar was at dominant position.

Model Questions Category: