Question

What are the pros and cons of including the CNY in the SDR ?

Answer 1

Answer-

SDRs are supplementary foreign exchange reserve assets which are defined and maintained by the International Monetary Fund (IMF). Thi basket contains 5 currencies. US dollar,  Euro, Pound sterling, Japanese yen and Chinese Yuan.
The pros and cos of including the Chinese Yuan (CYN ) in Special Drawing Rights (SDR) are

Pros

1) It shows the power of Chinese economy in the world among the emerging economies.
2) It is the first country from the Asian economy to b elevated in the SDRs.
3) It will stabilize Yuan and reduce the curreny risks.
4) The inclusion of Yuan in SDRs will significantly benefit the BRICS nations.
5)  There are countries like India have a trade deficit with China and need the Yuan wheras the countries in Africa have a trade surplus with China, and have been buying Yuan. All of these ountries will benefit now and will be able to trade in currency market.

Cons

1) The devaluation by authorities with lack of transparency and stability will be a challenge for Yuan.
2) The political risks in China are more compare to the western counterparts which will be difficult for China to convince the investors.
3) The Special Drawing Rights (SDRs) are an abstract weighted average. The SDRs are not an actual currency that can be used by investors.
4) It will be difficult for the chinese government to convince the investots regarding the claim that the central bank the Peoples bank of china as an independent intitution.