Monday, November 14, 2011

International Monetary Fund to release new rules for currency basket

The International Monetary Fund will release new criteria for currencies to enter its Special Drawing Rights (SDR) basket by the end of November, a possible step to including Brazil's real and China's yuan, Brazil's O Estado de S. Paulo newspaper reported on Friday. Their inclusion would be important to Brazil and China because the SDRs are a basket of currencies most global trade is settled in -- U.S. dollars, euros, Japanese yen and sterling.
"There's already been a view for a while that the basket needs to be broadened at some point and that currencies from emerging markets would be the most logical candidates for inclusion," the newspaper quoted an unidentified, high-level IMF source as saying.

"The publication of the criteria won't automatically mean this or that currency is included or excluded, but will just clarify what requirements a currency will have to meet for inclusion," the source added.

A representative of the IMF was not immediately available for comment.

Brazil and China are part of the powerhouse BRICS group of emerging markets, also comprising Russia, India and South Africa.

As many developed economies have faltered -- the U.S. recovery remains fragile, and a two-year-old sovereign debt crisis could threaten the 17-nation euro zone's existence -- those emerging markets are assuming increasing prominence.

The largest economies in Latin America and Asia, respectively, both Brazil and China have made clear they want greater representation at the IMF to reflect their greater clout on the world stage.

The SDR is not a currency. It can be held and used by member countries, the IMF and certain designated entities called "prescribed holders."

SDRs can be traded for one of the "freely usable" currencies through voluntary trading arrangements among official SDR holders, and there is also a backstop system to ensure the liquidity of the SDR for countries with balance of payments needs.


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