Will China be accepted into the SDR club?

It began reporting its foreign reserve portfolio to the IMF, launched the first phase of
the China International Payment System in Shanghai and promoted its yuan to overtake the Japanese yen as the world’s fourth most-traded currency.

These developments are important, as they provide support for the inclusion of
the yuan in the IMF’s special drawing rights (SDR) basket of US dollars, euros, British pounds and yen.
Next month, the IMF is expected to announce its decision on whether to
include the yuan in the SDR, and the odds are in favour of that.
Not only has China been making an effort to improve the usability of its currency, but the US, which had opposed the yuan’s inclusion, has also softened its stance.
Since SDRs account for less than 3 per cent of central bank reserves, the addition
of the yuan in the SDR basket will be of symbolic importance – a sign that it’s been admitted to the “club” of hard currencies.
According to the vice president and treasurer of the World Bank’s International Finance Corp, Hua Jingdong, once the yuan joins the SDR, central banks and institutional investors will want to accumulate yuan-denominated assets.

Bringing down trade costs
This will be a major positive for the Chinese economy, as it will bring down trade costs for China and its trade partners, facilitate trade settlement and avoid the risks of using a third-party currency while supporting the “going abroad” strategy of enterprises in China.
And, as we have seen in the recent turmoil in world markets, the health of China has an enormous impact on the rest of the world.
The purpose of the SDR when it was introduced in 1969 was to bolster the global financial system by providing liquidity to a country in financial distress.
And indeed during the global financial crisis of 2009, the IMF did make an SDR allocation to support the global economy.
Given the IMF’s concerns about the world economy, it would be surprising if it let slip this opportunity.