The International Monetary Fund (IMF) announced on December 1, 2015 the inclusion of the RMB into its Special Drawing Rights (SDR) basket. The decision gave the RMB a weighting of 10.92 percent, after the U.S. dollar (41.73 percent) and the euro (30.93 percent) and ahead of the Japanese yen (8.33 percent) and the British pound sterling (8.09 percent). Effective in October 2016, the move marks a milestone in the RMB's global march.

Hastened RMB Internationalization

The SDR is an international reserve asset and unit account created by the IMF in 1969, in the context of the Bretton Woods fixed exchange rate system. Since the international supply of two key reserve assets – gold and the U.S. dollar – proved inadequate to support the expansion of world trade and the financial flows that were taking place, the SDR, also known as "paper gold," aimed at allowing a member, in the event of an international payment deficit, to exchange foreign currencies with other SDR members, either to balance its deficit or repay IMF loans. Besides, the SDR functions the same way as gold and convertible currencies in being an international reserve asset. The IMF reviews the basket composition every five years to decide if new currencies need to be included, judging by their status in the international trade and financial markets. The weighting of each SDR currency is accordingly adjusted.

Before the RMB was included, the U.S. dollar was weighted at 41.9 percent, the euro at 37.4 percent, the British pound sterling at 11.3 percent, and the Japanese yen at 9.4 percent.

Economic globalization in modern times demonstrates that the price factor plays a key role in a nation's economic strength and core competitiveness. For instance, in the 1860s, planting and manufacturing industries shifted from Europe to North America, where land was broader and cheaper. The new continent seized this opportunity to make itself the world economic center. Another example took place in the 1980s in Southeast Asia, which took the advantage of its rich yet economical labor resources to draw foreign direct investment and so beef up its manufacturing.

In addition, natural resources determine a nation's economic scale. China has always been considered a large country with an enormous population and abundant resources. It stood at the world forefront of economy and financing from the third century BC to the mid-19th century.

In the era of economic globalization, however, a country's capability to allocate worldwide resources, particularly capital, is decisive to its strength. Since the 20th century, global capital, technologies, human resources, and industrial chain divisions and combinations have influenced a country's command of the world's financial capital. An economic power should be capable of deploying resources worldwide. This is echoed in the expression "two markets and two kinds of resources" that Chinese politicians and economists often use, which refers to international and domestic markets and resources. Moreover, an economic heavyweight must also be a great financial power with a say in the flow of funds and technologies within the global labor division chains, as well as in determining labor divisions. It thus becomes ultimate allocator of production factors.

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