Write about IMF’s SDR. Should India support Renminbi’s inclusion

IMF’s SDR(Special drawing rights):

DEFINITION:

An international type of monetary reserve currency, created by the International Monetary Fund (IMF), which operates as a supplement to the existing reserves of member countries. Created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts, SDRs are designed to augment international liquidity by supplementing the standard reserve currencies.

You can think of SDRs as an artificial currency used by the IMF and defined as a “basket of national currencies”. The IMF uses SDRs for internal accounting purposes. SDRs are allocated by the IMF to its member countries and are backed by the full faith and credit of the member countries’ governments.

Presently the “basket” includes US dollar, Euro, Yen and Pound. Inclusion in the basket gives financial clout and gives the Renminbi greater acceptance as a reserve currency.

Source: Investopedia

Should India support Renminbi’s inclusion?

According to Chief Economic Advisor Arvind Subramanian India must support because:

  • As the currency(Renminbi) becomes more international, the more open(Chnese economy) it will become to the world
  • At the same time, the less China will be able to manipulate it, which is to India’s advantage
  • India’s strategic objective should be to strengthen multilateral institutions and use them to pressure China. It’s greater role in IMF, will pressure them in to following global norms.

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