A day after cutting the weighting of US dollar and yen in the SDR, the International Monetary Fund (IMF) said it did not include China's yuan in the basket as the currency does not meet the freely usable criteria.
The SDR (Special Drawing Rights) is currently constituted by the dollar, euro, Japanese yen and the British pound. The IMF on Tuesday also hiked the value of euro and pound in the basket.
SDR is a hot topic ever since key officials across the globe started to doubt if the US dollar 'deserves' to be the world's reserve currency. The US central bank's move to print more of the currency to help the world's largest economy recover from the financial crisis bought more takers for the argument that the SDR should take a more active role.
Representatives of many emerging and developed countries have already expressed their interest in the revamp of the SDR basket so that it will reflect the recent dramatic changes to the world economic order and to let it eventually replace the greenback.
One of the most important demands is the inclusion of yuan, the currency of the world's second largest economy, which is also the largest exporter of goods and services.
The SDR revision that takes place once in five years, however, did not include the yuan in its 2010 November review, for the disappointment of many.
See the table below for the changes made to the SDR basket in terms of weighting of constituent currencies, announced on Tuesday.
w.e.f. Jan 1
Guo Shuqing, Chairman of China Construction Bank Corporation, Nobel Laureate Robert Mundell and Goldman Sachs Group's chief global economist Jim O'Neill are just a few of those who demand a review of SDR or more active role of the Chinese currency in global trade and economics.
Zhou Xiaochuan, governor of the People's Bank of China, last year said SDRs offer light in the tunnel for the reform of the international monetary system.
The IMF, however, has urged the issue be kept under review and also signaled that the fund will next year begin an examination of the indicators used to select currencies.
The yuan has risen more than 2.8 percent versus the US dollar after China scrapped a two-year peg on June 19 to fight accelerating inflation and as a response to global pressure to allow appreciation.
The IMF statement on Tuesday also said that it will calculate the amounts of each of the four currencies to be included in the new SDR basket and issue a press release regarding the same on December 30 in accordance with the new weights. The first SDR exchange rate using the new basket will be posted on January 3.
The SDR is an international reserve asset that was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies.