International Monetary Fund decides to extend current SDR currency basket until September 2016

The worldwide Monetary Fund has yet to make a final decision on whether or not to add any new currency to its new SDR basket this year. The rest of the world is watching. To have a substantive beneficial impact on trade, the renminbi would need to see rapid depreciation, a scenario that the authorities would probably be unwilling to allow, given the risk of triggering sharp capital outflows, which would potentially create more instability in financial markets and the economy. The inflation-adjusted price of global Chinese exports has gone up nearly 40 percent over the last two years, according to research by Michael W. Klein, an worldwide economic affairs professor at Tufts University. The board’s action confirms an earlier proposal for a delay in the five-year re-evaluation of the basket, which doesn’t include the yuan, and it said a decision on the future basket is expected by the end of the year. US products that are domestically and globally competitive will now be artificially more expensive.

“I do not think China should pay too much attention to the question of whether and how the RMB can be included in the SDR”, he said.

China’s main domestic stock-market indicator has fallen about 30% since mid-June.

Currency market reaction to China’s central bank lowering the peg for the fixed range the yuan is allowed to vary in. The Shanghai Composite Index fell by 3.4 per cent on Thursday following a 6 per cent fall earlier in the week.

Like most countries, China isn’t monolithic, and many parties-most notably at the central bank-favor further economic overhaul, say analysts and officials. “Trump, who is leading in opinion polls to become the Republican nominee for president, injected the i ssue into the 2016 campaign, saying August 11 that “‘devalued” means “sucks the blood out of the United States.'” Charles Schumer of New York – the third-ranking Senate Democrat – has threatened legislation to punish China with import tariffs.

You can add London Telegraph columnist Liam Halligan to the list of experts who see China’s devaluation of the yuan last week as a sign of its entry into the global currency war. The Wall Street Journal quotes the IMF’s legal department as saying its ban on currency manipulation “is a relatively complex provision, and not all of its terms are easily understood or easily applied”.

Ironically, the currency tinkering hasn’t been very good for China, either. “So that is the cost of change, which is hard, is difficult all over the world, adjustment, but it has to happen and we are quite comfortable the way it happening, because it’s happening in a control and moderate way”, said, International Monetary Fund mission chief for.