Renminbi's inclusion in SDR could generate boost to global liquidity

THIS month's much-heralded entry of the renminbi into the Special Drawing Right (SDR) could generate a little-noticed boost to global liquidity, adding further to China's arsenal of international financial instruments outside of established Western-guided policies.

The main significance of the Chinese currency's introduction into the International Monetary Fund's (IMF) composite currency unit on Oct 1 has been to enshrine the renminbi as a reserve currency alongside the dollar, euro, sterling and yen. This is the first time a developing country has joined the elite "club" of countries at the heart of world finance.

Of less obvious importance, bringing the renminbi into the SDR - with a share of around 11 per cent, above 8 per cent each for sterling and the yen - transforms a string of bilateral Chinese swap lines with 31 international central banks into a potential source of dollar liquidity for countries that may run into payments constraints.