UPSC Prelims 2016 Q14: Indian Economy – International Institutions & Reports
Recently,
which one of the following currencies has been proposed to be added to the basket of IMF's SDR?
- (a) Rouble
- (b) Rand
- (c) Indian Rupee
- (d) Renminbi
Answer: (d) Renminbi
Explanation
Currencies in the IMF's SDR basket
The Special Drawing Right (SDR) is a reserve asset created by the IMF in 1969.
Its value is based on a basket of currencies, reviewed every five years.
| Currency | In the SDR basket? |
|---|---|
| US dollar | Yes |
| Euro | Yes |
| Chinese renminbi | Yes, added from 1 October 2016 |
| Japanese yen | Yes |
| Pound sterling | Yes |
The IMF decided in November 2015 to add the renminbi as the fifth currency.
The other options:
| Option | Country | Status |
|---|---|---|
| (a) Rouble | Russia | Not in the basket |
| (b) Rand | South Africa | Not in the basket |
| (c) Indian Rupee | India | Not in the basket |
Answer: (d) Renminbi.
Why each option is right or wrong
- (a) Incorrect. The Russian Rouble has never been proposed for the SDR basket.
- (b) Incorrect. The South African Rand is not part of the SDR basket.
- (c) Incorrect. The Indian Rupee is not in the basket of the IMF's SDR.
- (d) CORRECT. The Chinese Renminbi was added to the SDR basket in 2016.
Key point
SDR basket (five currencies): US dollar, euro, Chinese renminbi (added 1 October 2016), Japanese yen, pound sterling.
Remember
SDR's fifth currency = renminbi (2016).
Common mistakes
- Thinking the SDR is a currency; it is a reserve asset and unit of account.
- Forgetting that a currency must be 'freely usable' to enter the basket.
- Confusing the renminbi (the currency) with the yuan (its unit).
Exam tip
SDR basket = the five most used trading currencies. No BRICS currency other than China's.
Sources
- International Monetary Fund — Special Drawing Rights (SDRs): factsheet
- International Monetary Fund — IMF Executive Board completes review of SDR basket (30 November 2015)