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The Chinese Yuan Special Drawing Right Basket and Currency Risk Management

Author

Listed:
  • Khalifa Hassanain

    (Islamic Research and Training Institute/Islamic Development Bank, P.O. Box 9201 Jeddah 21413 Kingdom of Saudi Arabia.)

Abstract

The focus of this short paper is on SDR based currency risk management including the choice of the appropriate currency index, pattern of adjustment of currency weights following financial shocks and the exchange rates to be used in the process of calculations. The new change in the SDR basket, namely the introduction of the Yuan, may introduce new challenges to currency risk management at MDBs and other institutions using SDR to hedge against currency fluctuations. This study analyze the impact of including the Yuan in the SDR currency basket compared to original no Yuan basket and the change the introduction of the Yuan make on the characteristics of the SDR and other proposed indices (adjustment pattern, Stability and return). The study covers the period 2000-2016. The overall result suggest that the Yuan basket will be less volatile but will have limited impact on SDR dominated assets and the stability of their value.

Suggested Citation

  • Khalifa Hassanain, 2017. "The Chinese Yuan Special Drawing Right Basket and Currency Risk Management," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 512-516.
    • Handle: RePEc:eco:journ1:2017-05-59
    as

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    References listed on IDEAS

    as
    1. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
    2. Khalifa Hassanain, 2015. "Special Drawing Right and Currency Risk Management," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 780-785.
    3. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    SDR; Currency Risk; MDBs;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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