On November 30, 2015, the Executive Board of the International Monetary Fund decided to include the renminbi as a special-purpose (SDR) currency. According to relevant person in charge of the People's Bank of China, after the renminbi is "blue," China will accelerate the promotion of financial reform and opening to the outside world.

The inclusion of the renminbi in the SDR currency basket means that the renminbi will be recognized and accepted by the international market. The renminbi will exercise monetary functions worldwide, gradually becoming trade pricing currency and settlement currency, financial trading and investment currency, and international reserve currency.

So why can RMB join the SDR currency basket at this time?

First, from a macro perspective, this is because of the enhanced performance of our country’s overall national strength.

Secondly, from the perspective of currency itself, this reflects the rising international status of the renminbi.

Third, from the perspective of technical indicators, the renminbi has met the requirements of the added indicators.

What impact will China have on SDR currency baskets?

The inclusion of the renminbi in the SDR currency basket means that the renminbi will be recognized and accepted by the international market. The renminbi will exercise monetary functions worldwide, gradually becoming trade pricing currency and settlement currency, financial trading and investment currency, and international reserve currency.

Specifically, the renminbi's participation in the SDR currency basket will gradually affect the internationalization of the renminbi and the financial industry, especially the banking industry and financial consumers.

First of all, judging from the impact of RMB internationalization, the inclusion of RMB in the SDR currency basket will help the renminbi to achieve breakthroughs in multilateral use, international investment and financing, cross-border asset allocation, and international currency systems, which will help break through the RMB. The dilemma of internationalization has further accelerated the process of RMB internationalization.

Secondly, from the perspective of the impact on China's financial industry, the renminbi's participation in the SDR currency basket not only meets the needs of the international market, further promotes the reform of the IMF governance mechanism, but also can promote domestic financial reforms, and in particular, will force China’s capital account liberalization and exchange rate formation mechanism reforms. For China and the world's economic and financial system, this will be the result of a win-win situation.

Again, from the perspective of the impact on financial consumers, with the deregulation of foreign exchange control, the RMB settlement area continues to expand, and the exchange and use of RMB in many countries and regions is quite common. Domestic residents do not have to travel abroad, visit relatives, study abroad, and so on. For foreign exchange, they have saved the currency exchange fees and smoothed out the settlement channel.

Overseas travel shopping will use RMB directly

Experts said that from the long-term perspective of the renminbi joining SDR, the Chinese people will be able to directly use renminbi to travel, shop, and invest abroad, reduce exchange costs and avoid exchange rate risks.

Savings: RMB is stronger

The SDR basket currency is usually regarded as a safe-haven currency and gaining this status will undoubtedly increase the use of the renminbi by the public and private sectors internationally.

With the rising demand for the renminbi in the international market, the possibility that the renminbi exchange rate will remain basically stable and even strong in the future will be greater.

Trading: More convenient cross-border transactions

As the demand for renminbi in the international market is gradually increasing, the renminbi exchange rate will be supported in the future, and it will also help cross-border investment, trading, acquisitions, mergers and acquisitions of resources, labor services, and technology. Chinese companies often provide more attractive prices and financing to trading partners in exchange for the use of RMB settlement to eliminate their own exchange rate risks.

Consumption: Directly spend RMB to go abroad

Due to the expansion of the renminbi pricing function, many commodities are priced in RMB, which will avoid the risk of exchange rate fluctuations and reduce the purchase cost. According to Lian Ping, chief economist of the Bank of Communications, with the renminbi joining the SDR, more and more countries have recognized the renminbi and are willing to accept the renminbi, which will make it easier to go abroad for shopping, travel, etc.

Investment: Can buy house stocks abroad

With the opening of the capital and financial accounts, if the renminbi maintains a stable situation, it will be conducive to investors in global asset allocation and trading. In the future, Chinese people can more easily allocate overseas assets, go abroad to invest in real estate, stocks, and bonds. It will no longer be a dream to take the RMB directly to buy houses abroad.

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