Yuan to Be Added to SDR at the IMF


QUESTION: Mr. Armstrong; If I understand you correctly, should the IMF accept the yuan as a reserve currency, this will have zero impact other than political. Correct?


ANSWER: Correct. The IMF will decide in November whether to expand the current composition (U.S. dollar, euro, yen, and British pound) of Special Drawing Rights (SDR) with another currency. Whether this takes place is really irrelevant. The euro is already in there and that has done nothing to kill the dollar; the yen is not a viable place to park international capital, and the pound is too small. The hype people are associating with this is really stupid. Whether the IMF includes the yuan in the SDR is meaningless for the reserve currency must be a deep market and a place to park big money. That has not yet been established for the yuan. That also does not apply to the euro, yen, or pound. It should help to get the dollar bears all short so they can add the fuel to the next rally as they have to cover their positions. As long as U.S. debt is the only game in town, you will not dethrone the dollar.

Eventually, the yuan will emerge as a real reserve currency. However, it is not yet ready for primetime. This political issue is necessary right now because the Chinese economy is turning down, which is impacting the emerging markets and will help to turn Europe into a real depression. So this is political at this time and an attempt to help support the yuan which is under serious pressure with massive capital outflows.