China issues new 100-yuan note with SDR basket in mind

Nov 13, 2015, 08:30 am

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The new 100 yuan bank note (front & back)/ Source from People's Bank of China (PBOC), Yonhap News

By AsiaToday reporter Kim Yoo-jin - It seems that competition between the American greenback and Chinese redback will become fierce.

The Chinese government has updated design of the 100-yuan note to boost confidence of overseas users, raising the prospect that China's yuan may be admitted into the International Monetary Fund's (IMF) Special Drawing Rights (SDR) basket as early as November 30.

China News Network reported on Thursday that People's Bank of China (PBOC) has officially put the country's new 100-yuan banknote into circulation starting Thursday. The new note has improved anti-counterfeiting features using hologram technology and 3D printing technology.

The market explains that China's new note is deeply related with yuan's inclusion in the SDR currency basket. The SDR is a virtual currency and an international reserve asset created by the IMF in 1969 largely as substitute for disappearing gold reserves. It is potentially a claim on freely usable currencies of IMF members when they experience difficulties without security.

In global foreign exchange reserves, the proportion of yuan is less than 3% and it seems insignificant when compared with the US dollar accounting for 61%. However, if yuan joins the SDR basket, China would see its national currency included in the IMF's basket of reserve currencies.

In fact, the proportion of transactions denominated in yuan climbed to a 2.79% in August, from 2.18 percent in January and almost 0% in 2010. The yuan overtook Japan's yen to become the fourth most-used currency for global payments.

For inclusion into the SDR, yuan requires a 70% majority of the fund's member countries. Even if the US (16.75%) and Japan (6.23%) disapprove as they are keeping their eyes on China's rise, many European such as Germany, Britain, and France are showing support for China, raising possibility for yuan's inclusion.

But if the yuan gets to join the SDR currency basket, the proportion of the yuan in the currency basket may become an object of concern. The SDR is currently made up 44% of the US dollar, 34% of Euros, 11% of Japanese yen and 11% of British pound. If yen joins, the component ratio will inevitably change.

As a result, a fierce war is expected between the US and China. China has already begun in earnest to challenge the US-led world financial order by setting up Asia Infrastructure Investment Bank (AIIB) to rival Asian Development Bank (ADB). 

#China #100-yuan note #IMF #SDR basket 
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