NEW YORK (TheStreet) -- There's an important opportunity this year to rework the global currency system, and the U.S. must make sure it takes part in the related discussions.special drawing rights, which are foreign exchange reserves held by the IMF. Their value is based on a basket of four currencies: the dollar, the pound, the euro and the yen.
As Mandeng points out, countries can exchange SDRs for usable currencies to supplement their international reserve holdings.
The IMF reviews the composition of the basket of currencies every five years. What's important this time around is that there's a chance the Chinese currency, the renminbi (or yuan), gets added to the basket. Mandeng writes that the review this year can be more than just a perfunctory assessment of what should be included in the basket of currencies. He argues that this review provides the world with a chance to change the international monetary system.
SDRs were created in the 1970s in an attempt to provide greater liquidity to central banks in a world dominated by the greenback. The SDRs originally included 16 currencies.
The dollar achieved its dominant position after the World War II, a dominance that was codified at the Bretton Woods Conference, which defined the structure of international finance for the postwar world.
This dominance has been maintained up until now and allowed the U.S. to support its economy through a decline in the value of the dollar up until early 2014.
From time to time, various attempts have been made to make SDRs a rival to the dollar, but, as Mandeng notes, all these efforts have flopped.
What is different now, he adds, is that "Interest in the SDR has shifted significantly in large part due to China."
The tone of the review is different, Mandeng writes, because, "SDR valuation reviews are normally rather technical affairs. This time though, the introduction of additional currencies is firmly on the table. China has taken big steps to lobby for the inclusion of the renminbi."
Mandeng suggests that new SDR currencies should not be limited to the yuan, however. He says major emerging-market currencies, as well as the Canadian and Australian dollars, could also qualify.