New Reserve Currency: G20 considers wider role for China's yuan

The SDR (see previous posts on SDR under 'Financial Stability')  closer to becoming the reserve currency: Amidst worries of the US defaulting due to political wrangling, a stronger push for a new reserve currency grows.  The SDR would allow a number of nations to participate and keep any one nation's economy from impacting it in a crisis, unlike it is now with the reserve currency being hinged on the US economy.  One of the large participants to sway is China.  In order for China to get closer to the goal of opening the door to being a part of a reserve currency, all they have to do is to give up sovereignty over their central banking system, the way so many other countries have done.  The question is what will it take to entice China further into the world banking system?  Some analysts say it will be years to get China into the SDR basket.  China has stated that it intends to become 'the' reserve currency in ten years time.  One wonders if the IMF can make their offer of the SDR basket sweet enough to bring China's banking system fully into the fold.

Excerpts from a BBC article which discusses the latest G20 meeting in China:

The G20 is to study whether to include the Chinese yuan within the basket of currencies that make up the IMF's Special Drawing Right.  The Special Drawing Right, or SDR, is a quasi currency used within the IMF by its member countries.

Some economists believe the SDR could one day become a global reserve currency alongside the US dollar.

 "Without rules and supervision, the world runs the risk of being condemned to increasingly serious and severe crises," said President Sarkozy.

"It is clear that we must evolve toward a more flexible exchange rate system that will allow us to withstand shocks," he added.

His comments were backed by US Treasury Secretary Timothy Geithner who said he supported a change to SDR composition.

"Over time, we believe that currencies of large economies heavily used in international trade and financial transactions should become a part of the SDR basket," he said.

Currency control
However, Mr Geithner said that for this to happen, governments would have to loosen their control of currencies.
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Read full article:  BBC News - G20 considers wider role for China's yuan